The Cuban Economy is Not Growing… and is Getting Worse and Worse

Tourists in Havana. (14ymedio)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 13 October 2022 — Along with the inflation of the CPI in Cuba last August, the other data that have come to cast dark shadows on the nation’s economic landscape is the growth in GDP recorded in the second quarter of the year.

Economists must be attentive to these intense changes that occur in the Island’s economy, and in particular, the GDP deserves special attention.

Specifically, the GDP of the second quarter of 2022 has grown by only 1.7%, a rate that reflects two things: the economy remains weak this year, and it’s struggling to overcome the shock caused by the COVID-19 pandemic. On the other hand, without growth, underlying problems such as inflation, lack of control of public accounts, and peso exchange rates tend to worsen, so that once again, the authorities show their inability to lead the economy to a more balanced scenario, which introduces numerous questions for the coming months.

Of the 19 branches of activity that the ONEI breaks down for the GDP component, it should be noted that in the second quarter, a total of 13 have registered negative signs in their evolution compared to the same period of the previous year, while 6 have registered positive signs.

Among the first, the intense decreases in the sugar Industry stand out, -43.8% (a real national disaster, after the very intense decreases in previous years), Fisheries -33.2% (which means less export income), and a decrease of -15% in the Manufacturing Industry or the Electricity Sector (there is the origin of the blackouts). The GDP of agricultural production fell by -7.4%, and, more seriously, every quarter since 2021 it has been decreasing. This means that since the beginning of 2021, food production in Cuba has decreased by -67%, pointing to the failure of the 63 agricultural measures decreed by the regime.

Among the activities that grew their GDP, Hotels and Restaurants stand out, at 42.1%,  which still doesn’t reach the GDP levels prior to the crisis. It is followed by Education, a social expenditure encouraged by the return to normality in schools. However, in Public Health, GDP has decreased by -13.9%, possibly to adjust the accounts of the state budget and avoid their lack of control.

The data cited for the second quarter of GDP, 1.7%, should be seen in relation to that for the same period of the previous year, when there was an increase of 8.9%, but it’s more significant to do so with the GDP of the first quarter of 2021, which grew by 10.9%. The contrast between the two indicates a real slowdown in the growth of the economy reflected by the accounts, in which the components linked to public spending, except for Education, have entered into negative territory. For example, Public Administration, falls by -0.3%; Science and Innovation, -1.4%; Health, the -13.8% cited above, and Other Social and Communal Services, -2.9%.

The behavior of the Cuban economy indicates that the regime hasn’t been able, perhaps because it has no plans, to modify the “engines” of the economy by making them pass from the state to the non-state, productive sector (in a way, an extension of the state). Hence, the economy slows its growth when these state activities do and increases otherwise. It’s more of the same, in a failed economic and political model that ranks the Cuban economy as one of the most backward in overcoming the COVID-19 crisis.

The intense change of situation in the second quarter of 2022 is not good news for the coming months. If the patterns of previous years are maintained, the third quarter, which has now ended, will not mean an improvement compared to the second, which will contribute to lower economic growth.

Only the last quarter of the year remains, which entails doubts about an eventual recovery of tourism in the high season. The evolution in the form of the cachumbambé [see-saw] of the Cuban economy since the first quarter of 2021 is a good example of the regime’s failure to achieve more stability and ensure a certain credibility of national accounts. The poor relationship between the productive, state, and non-state sectors, the reduced flexibility of economic activity and the obstacles of the communist model take care of the rest. Cubans will not experience an improvement in the economic situation in 2022.

Translated by Regina Anavy


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