Country Report Cuba January 2013

Country Report Cuba January 2013

Outlook for 2013-17

• A change of leadership is highly likely in the forecast period. The Economist Intelligence Unit expects the handover to be relatively smooth, but there is no obvious presidential successor among the younger generation of politicians.
• We do not expect a marked improvement in US-Cuban relations in 2013-17. With the Republican Party retaining its majority in the US House of Representatives, prospects for a further relaxation of sanctions are dim.
• Liberalising reforms will continue, aimed at reducing the state payroll by over 1m workers, expanding private-sector activity, tackling widespread low-level corruption, raising productivity and gradually eliminating the ration system.
• Following the government's downward revision to its 2013 growth forecast, we have adjusted ours down in line to 3.5% (from 4.6%). We expect growth to be moderate thereafter, averaging 4.3% in 2014-17.
• The government will continue to influence inflation directly and indirectly, but, as goods are removed from the ration system, the rate of inflation will rise (to an average of 6% in 2013), at least in the short term.
• We expect efforts to unify Cuba's hard currency (CUC) and domestic currency (CUP) to accelerate in 2013 following the announcement of a pilot scheme that will introduce a new exchange rate of CUP7:CUC1 for some enterprises.
• We expect a moderate current-account deficit in 2013-17 (averaging 1.4% of GDP annually) as import spending outstrips export earnings. Growth in tourist arrivals will be supportive in the latter part of the forecast period.

Review

• The protracted illness of the Venezuelan president, Hugo Chávez, has raised doubts about his ability to take office for a new term. This has raised uncertainty for Cuba owing to its dependence on Venezuelan support.
• Trade data for 2011 (belatedly released in December 2012) have served to highlight Venezuela's growing importance as a trade partner since 2004.
• A legal challenge to the Cuban state brought by dissident lawyers on November 20th, which accused state security agents of making improper arrests, represented a new and interesting step for Cuba's dissidents.
• Official announcements in Cuba's National Assembly on December 13th-14th included those about moves towards further price liberalisation and a pilot scheme for the use of an intermediate exchange rate.
• According to official estimates, the Cuban economy grew by 3.1% in 2012. This was below the official 3.4% target and was blamed on unfavourable external conditions and domestic shortcomings, particularly in the construction sector.

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