World Economy

Cuba Growth Halving to 2%

Cuba Growth Halving to 2% Cuba Growth Halving to 2%

Cuba is forecasting that economic growth will halve in 2016 to 2% from this year, and Cuban President Raul Castro blamed the decline on falling export revenues.

Echoing an earlier statement by Economy Minister Marino Murillo, Castro confirmed the forecast for a slowdown in 2016 as he closed the year-end-session of the National Assembly. His comments were reported by official media, the Cuban News Agency ACN reported.

Castro attributed the decline to “financial limitations associated with the fall in earnings from traditional exports.” Prices for key exports such as sugar, nickel and refined oil products have all fallen significantly this year.

Despite the government’s assertion that the GDP grew 4% this year, there is widespread dissatisfaction among Cubans over the widening gap between low salaries and the high price of essential goods, most particularly food.

Castro appeared to be preparing Cubans for harder times ahead, saying that “we must cut any unnecessary spending and make use of the resources that we have with more rationality and with the goal of developing the country.”

Castro said lower oil prices had reduced the cost of a number of imports such as food but also hurt “mutually advantageous cooperation relations with various (oil-producing) countries, in particular the Bolivarian Republic of Venezuela.”

The collapse of oil prices punishes Cuba under the terms of its oil deal with Venezuela. Cuba receives more than 100,000 barrels of oil per day as part of an exchange that sends Cuban professionals to Venezuela. Some 30,000 doctors and nurses, plus another 10,000 professionals, are posted in Venezuela.

Cuba also receives cash for the workers. Economists and oil market experts believe the amount is tied to oil prices, meaning Venezuela would pay less to Cuba when prices are down.

Cuba refines and resells some of the oil in a joint venture with its socialist ally. Prices for refined products are down in tandem with crude.

The fall in oil prices has been a major driver of financial markets this year. Oil prices rose about $1 a barrel on Tuesday, but slowing global demand and abundant supplies from OPEC members kept energy markets bearish. Venezuela is a member of the Organization of Petroleum Exporting Countries.

Traders and analysts said the global oil glut would persist into 2016.

“Cuba’s trade with Venezuela represents 15% of the gross domestic product, half of what the Soviets’ trade represented,” said Cuban economist Pavel Vidal, a professor at Colombia’s Pontificia Universidad Javeriana Cali.

Cuba continued to receive oil this year, but most likely not all the cash it may have been owed, Vidal said.

Diplomats and foreign businessmen based in Cuba said state companies were cutting imports and seeking longer payment terms from suppliers.

More than three million tourists visited in 2015, an increase of nearly 20% in the wake of President Barack Obama’s declaration of detente with Cuba. The surge in visitors pumped cash into the state-controlled tourist economy and the growing sector of private bed-and-breakfasts and restaurants, but it also drove up household inflation.