This month, Hurricanes Irma and Maria pummelled the Caribbean. Irma and Maria were both branded in category 5, the strongest category on the Saffir-Simpson scale. Irma was even one of the fiercest Atlantic hurricanes ever recorded with packed winds of up to 295 km/h. In their wake, the hurricanes have caused severe destruction in the Caribbean: particularly Anguilla, Barbuda, Dominica, Puerto Rico, Saint Martin, Saint-Barthélemy, Turks and Caicos and the Virgin Islands. The storms also passed many of the region's largest economies, including Cuba and the Dominican Republic, and one of the poorest in the Americas, Haiti. However, these countries reported less destruction.

Impact on country risk

The hurricanes left infrastructure heavily damaged, especially in the smaller Caribbean islands. In the short term, the damage will undermine prospects for the region’s tourist high season in the run-up to Christmas. A (severe) economic contraction in 2017 is therefore likely in these heavily tourism-dependent islands. A long-term economic dip is also in the cards. The small economies will struggle to find revenues away from the vacation industry as a multi-year rebuilding process is expected. In addition, the expected reconstruction will hurt the fiscal finances, which are in some countries already in a bad shape (e.g. Puerto Rico, Dominica, Antigua and Barbuda). Furthermore, current account balances are projected to be negatively impacted as well in the coming years. As a result, foreign exchange reserves might decrease sharply in the Eastern Caribbean Union as the zone maintains a fixed exchange rate vis-à-vis USD and external liabilities might surge. However, the islands will probably get international help. The US, Great Britain, France and the Netherlands already sent help to their enclaves. The other economies hit by Irma and Maria are likely to be less impacted by the consequences of the hurricanes. Nevertheless, Irma gives a further blow to the Cuban economy, which is already impacted by the Venezuelan crisis. As the hurricane made landfall in the north of Cuba, tourism resorts were destructed while sugar-producing areas in the middle of the island were also severely damaged. Though Irma and Maria have been devastating, the hurricanes are only a grim reminder of the Caribbean’s vulnerability to natural disasters. Indeed, costs for the damage from hurricanes are estimated at more than 2% of GDP annually in the region. Researchers expect more extreme and damaging storms in the coming years because of global warming. Warmer seas will strengthen hurricanes while higher sea levels will make storm surges more destructive. Hence, storm costs are likely to increase in the future.

Analyst: Jolyn Debuysscher, j.debuysscher@credendo.com