Cuba Forecast

www.economist.com

Aug 27th 2007

From the Economist Intelligence Unit
Source: Country Forecast

It now seems unlikely that the president, Fidel Castro, will return to office. Since he handed over "temporarily" to his brother and vice-president, Raul, in July 2006, the process of succession has taken place. Raul Castro has settled into his role as acting president, reducing political risk in the event of Fidel Castro’s death. The Economist Intelligence Unit expects evolutionary, rather than sudden, political and economic change within the existing political system. Hostile relations with the US will persist, but there is a growing possibility of improvement after 2008. The Banco Central de Cuba (BCC, the Central Bank) will maintain discipline in macroeconomic management but liberalising reforms will be slow. GDP growth will decelerate to 7% in 2007 and 5.7% in 2008. Investment will drive growth, supported by rising household spending. Construction, infrastructure and manufacturing will expand, and there will be some recovery in agriculture. The current account will show a small deficit, which will be matched by net direct investment and debt financing flows.

Key changes from last update:

Political outlook

Raul Castro's speech on the July 26th confirmed the change in style of leadership. It was relatively short, and reiterated the priority being given to improvements in productivity. It also repeated the "olive branch" offered to the US, but we do not expect US-Cuban relations to improve until after 2008.

Economic policy outlook

Public statements by the acting president and other officials confirm a policy of gradual adjustment. In the coming year a greater availability of consumer goods will be coupled with a series of reforms of official prices, while a series of commissions examine more far-reaching proposals.

Economic forecast

The cost of imports has been higher than expected in 2007, and may have contributed to recent trimming of state investment plans. Our GDP growth forecast has been cut slightly, from 7.1% to 7%, in the light of this adjustment.