Trade Deficit To Narrow, For Now

We expect Cuba's trade deficit to fall substantially from its high of US$10.57bn in 2008 to US$7.00bn in 2009, driven by a drop in domestic demand and fall in the costs of imports. While the lack of data - there are no monthly figures available for 2009 - make gauging the outlook for the island difficult, our view remains that Cuba's economy has been hit very hard by the global economic crisis, and that its imports, especially, will not recover quickly. What is more, with China on the lookout for commodities, and with Venezuela sending more crude oil to the island for refining, this should help keep exports buoyed in 2009, narrowing the deficit further. Going forward, much will depend on the results of the ongoing oil exploration off Cuba's coast. Despite efforts by companies from Brazil, Norway and Spain, significant reserves have yet to be confirmed, moderating our forecasts for exports to US$3.65bn in 2010 and US$4.10bn in 2011. However, if the potential of these fields is realised, there will be significant upside pressure on our long-term export forecasts which would, in turn, see the trade deficit again widening.

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