Country Report Cuba October 2009

Outlook for 2010-11

• The focus for the president, Raul Castro, will be on responding to the economic slowdown and managing Cuba's shifting relations with the US.
• The initiation of talks between Cuba and the US marks an important step, but many obstacles remain on the path towards normalisation of bilateral relations. Our forecast assumes that progress will be slow.
• The launch of a national debate on economic policy in September 2009 will form the foundations for discussions on reform measures at the Partido Comunista de Cuba (PCC) Congress, which is likely to take place in late 2010.
• We estimate that real GDP will grow by just 0.9% in 2009, but expect some improvement in 2010-11, reflecting less unfavourable external conditions and stronger private consumption growth.
• Price distortions will delay the start of the convergence of the dual exchange rate. A rebound in 2010 should help create the conditions necessary for revaluation of the unofficial rate to begin in early 2011.
• The current-account deficit is expected to narrow from an estimated 2.1% of GDP in 2009 to 1.7-1.8% in 2010-11, reflecting an increase in current transfers. The capital-account surplus will cover the deficit, keeping reserves stable.

Monthly review

• A schedule for the long-awaited 6th Congress of the PCC has begun to emerge, with a series of national consultations suggesting that it is likely to take place towards the end of 2010.
• The government's support for a high-profile music concert staged in Havana has pointed to greater confidence on the part of the authorities, as it would not have been possible for them to control any protest if it had occurred.
• The US president, Barack Obama, has renewed the 1917 Trading with the Enemy Act, which now applies only to Cuba, for another year, on the basis that it was in the national interest of the US.
• A pilot scheme for the elimination of subsidised workplace canteens represents an important step towards expanding the role of the market and has major implications for household incomes and the fiscal accounts.
• The private sector in agriculture and transport has been further expanding, with the continuation of the distribution of idle agricultural land to farmers and the resumption of a process to allow private cars to be used as taxis.
• The authorities have announced that fixed investment fell by 5.9% in the first half of 2009. Given that overall GDP growth was positive (0.8%) this suggests that private consumption remained relatively solid.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52