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Summary

The Central American and Caribbean economies have performed well in recent years, largely because of their dependence on and integration into the U.S. market. The region is projected to continue outperforming most of the rest of Latin America over the next few years, with the economic growth potential of the Dominican Republic, Nicaragua, Panama and Cuba standing out. Although many Central American and Caribbean countries also face economic challenges, such as the weakening of Venezuela's economy and the associated decline of the Petrocaribe program, these challenges will likely allow the United States to boost its commercial and political influence in the region in the coming years.

Analysis Though Central American and Caribbean countries are geographically and economically small, they are located along a strategic trade route for U.S. agricultural and energy-producing centers. The United States has been a major trade partner and an important investor in the region since Washington signed the Dominican Republic-Central America Free Trade Agreement in 2004.

In terms of exports, the economies of Central American and Caribbean countries are mostly geared toward raw material, particularly agricultural goods such as fruit, coffee and sugar. However, there are also some low-end manufacturing exporters of products such as textiles, processed foods and electronics. The United States is the largest export destination for almost all Central American and Caribbean countries, with two exceptions: Panama, because of the Panama Canal and the country's status as a regional shipping and financial hub, and Cuba, because of its decadeslong political and economic isolation from the United States under the Castro government.
China is also an important trade partner for countries such as Costa Rica and Cuba, though Beijing is more heavily invested in countries outside the region, such as Venezuela, Brazil and Mexico. Of the $61.5 billion in total exports from Central America and the Caribbean, $36.1 billion (59 percent) went to the United States, while $5.5 billion (9 percent) went to China. Mexico and Brazil are also notable export destinations, making up $5.3 billion (8.5 percent) and $1.8 billion (3 percent) of total exports, respectively, but the United States is by far the largest export market for Central America and the Caribbean.

Recent Economic Performance and Outlook Following a slowdown after the 2008-2009 global financial crisis, Central American and Caribbean economies expanded significantly. The regional gross domestic product grew 2.5 percent in 2013 and is expected to have grown 3.7 percent in 2014. The Dominican Republic and Nicaragua are particularly strong performers. Both have benefited from expanding their export infrastructure under the Dominican Republic-Central America Free Trade Agreement and received sizable investment into their low-end manufacturing industries, making them key alternatives to China . Panama has also seen strong growth and investment rates, though this is primarily because of its canal and associated service industries rather than an expansion of low-end manufacturing.
The World Economic Outlook published by the International Monetary Fund in April foresees strong growth in the region during the next two years. Projected growth in 2015 is 4.2 percent for Central America and 3.7 percent for the Caribbean; in 2016 it remains strong at 4.3 percent and 3.5 percent, respectively. One factor driving this growth is that most countries in the region are net importers of oil. Therefore, low oil prices, which hurt oil-producing countries such as Venezuela and Brazil , have the opposite effect on most of the region. Strong U.S. economic recovery also aids growth in Central America and the Caribbean because of the region's dependence on tourism and U.S. trade.