Economic Review

 A Statement on the Review of Barbados' Economy for the First Three Months of 2011.

According to a recent press release by the Central Bank of Barbados, the winter tourist season has been encouraging, with a significant rebound in tourist arrivals from the UK and the US. This was the main cause of the growth of real GDP in the first quarter, estimated at 2.8 percent. The stock of international reserves stood at $1,474 million at the end of March 2011, $20 million above that recorded at the end of 2010, and equivalent to approximately 20 weeks of imports of goods and services.
However, as a result of soaring international oil and commodity prices, the average rate of inflation for the 12 months ending January 2011 increased to 6 percent. The unemployment rate for the last quarter of 2010, which has now become available, was 10.5 percent.
 source: Central Bank of Barbados

Economic Forecast

According to the EIU Country Report for December 2010, following a real GDP contraction of 0.7% in 2010, the economy will remain in recession in 2011 before posting modest growth in 2012. Although global GDP growth has recovered since the crisis of 2008-09, the slow pace of recovery in US and UK demand—particularly for tourism and real estate—in 2011-12 will act as a drag on Barbados’s growth prospects. Despite the weak base of comparison growth in tourism will remain muted, owing to weak employment creation in Barbados’s major markets, and these bleak prospects will continue to deter tourism investment. This suggests that once the existing pipeline of publicly funded projects is completed, the previously robust construction sector will suffer.

At the same time, a tightening of fiscal policy, real wage cuts are still high ,unemployment in construction and tourism will hit private consumption (which has been a major driver of growth in recent years) hard, while growth
in the agricultural sector will largely reflect a recovery from the poor sugar harvest in 2010. A weak outlook for the tourism sector will also negatively affect fixed investment, while fiscal constraints hamper government
consumption. As a result, we forecast a further real GDP contraction, of 1% in 2011 before the economy returns to modest growth in 2012. 

Tourism Sector
The performance of the tourism sector, a key driver of economic growth, improved marginally during the period (from a low base), expanding by 3% in January-August as stopover arrivals rose by 4.1% year on year during January-September (latest data available), to just over 395,000. With no per-head expenditure data published for the period, the impact of the increase on sector earnings is unclear. However, arrivals from the UK—which are traditionally higher-spending tourists than those from other source markets—remained relatively flat during the period; the increase in arrivals was mainly owing to improved inflows from traditionally lower-spending tourists from the US and Canada. As a result, earnings are estimated to have remained well below pre-2009 levels.
 source: EIU Country Report. December 2010

The Medium Term Development Strategy (MTDS) of Barbados 2010 - 2014. “Recovery, Adjustment and Sustainable Development”

The Medium Term Development Strategy (MTDS) sets out a broad framework of policies and programmes, which the government will seek to pursue over the period 2010 – 2014. The MTDS gives support to the country’s long-term vision of becoming “A Fully Developed and Peoplecentered Society, through New Development Pathways”. The plan will serve as an important recovery tool that will be used to guide the country as it emerges from the current global recession. In this respect, the theme “Recovery, Adjustment and Sustainable Development” adequately speaks to the policy framework that has to be put in-place if Barbados is to remain on an upward growth and development path.
source: Government of Barbados

Economic Survey of Latin America and the Caribbean 2009-2010

According to ECLAC's most recent survey Barbados experienced continued economic contraction in 2009, with GDP declining by 3.6%. This reflected the slowdown in most economic sectors during the year, with modest improvements during the first quarter of 2010, when the rate of decline improved to 0.1%. The economic slowdown reflected a 6.6% fall in revenues from tourism, a pivotal sector in the Barbadian economy. However, reduced growth in other sectors also contributed to the weakened economy, with mining and quarrying falling by 20.0% and construction down by 10.0%. The manufacturing sector also declined, by 5.0%.
source: ECLAC

2008-2009
According to ECLAC's Economic Survey of the Caribbean  2008-2009, growth in the economy slowed significantly during 2008, down to 0.5% compared to the 3.4% recorded in 2007, reflecting the impact from the global recession. With a heavy dependence on tourism, the fall in visitor arrivals from North America and Europe became a major cause for concern. Additionally, sectors like mining, construction and manufacturing also recorded contractions, deepening the economic slowdown. Prospects for 2009 are no more encouraging, and the authorities expect GDP to fall between -2.0% and -2.5%.
source: ECLAC

Review of the Economy For the First Six Months of 2009

The global recession and financial crisis that first unfolded in late 2007 continued to depress the performance of the Barbadian economy in the first half of 2009. Real economic activity contracted by an estimated 3.0% during the period, following marginal growth in the corresponding period of 2008. Characterised by declines in both the traded and non-traded sectors, this marked the first such contraction since 2002.
Source: Central Bank of Barbados

Economic Performance

Barbados Country Brief
During 2008, economic performance in Barbados was marked by a slowdown from the previous year: GDP growth slowed from 3.2% in 2007 to an estimated 0.7% in 2008. Key sectors, like tourism and sugar production, faced mounting challenges, while inflation accelerated to 8% (December-December estimate) and the estimated current account deficit increased significantly to 9.5% of GDP in 2008 (7% in 2007). Forecasts for 2009 indicate an
increasing external deficit in the context of strong pressures on public finance and policies, while the impact of the global recession will translate into slower rates of activity for key economic sectors.

Tourism

Tourism activity had mixed results, with a slight decline in the number of stop-over arrivals for the first half of 2008, while cruise passengers expanded by 13.2%
source: ECLAC. Preliminary Overview of the Caribbean 2008-2009

The Domestic Economy

Worst tourism growth since 1990 contributes to recession
The Barbadian economy remained in recession in the third quarter of 2009 as the tourism sector continued to be affected by weak consumer demand in the US and UK, Barbados's two main tourism source markets. Detailed data for the third quarter are not yet available, but according to preliminary estimates from the Central Bank of Barbados, real GDP contracted by 4.4% in the first nine months of 2009.

 The Central Bank also revised its estimate for the contraction of GDP in the first half of 2009, from 2.9% to 4.8%. Although the third-quarter data are also likely to be revised, these figures imply a contraction of 3.6% in the third quarter, representing a modest improvement on the first half. Over the first three quarters as a whole, lower tourist arrivals constrained economic activity in both the traded and non-traded sectors. Preliminary data for January-September 2009 indicate that total stopover arrivals fell by 11.4% year on year. Arrivals from most markets were down sharply—including the US (down 17.4% year on year), the UK (a fall of 14%) and Caricom (down 12.6%)—but those from Canada were higher (up 11%) owing to increased airlift and an intensive marketing campaign. Cruise passenger arrivals fell by 0.4% year on year during the period. As a result, the Central Bank estimates that tourism value-added declined by 9.8% during the period, the largest nine-month decline in the sector since 1990.

The agriculture sector was the only economic sector to post positive growth in the first nine months of the year, with both sugar and non-sugar agriculture expanding. Output from the sugar industry rose by 1.2% year on year as a result of favourable weather conditions; increased production of milk and chicken boosted growth in the non-sugar agricultural sector by 1.7% year on year.
 In stark contrast, economic activity in the manufacturing sector fell by nearly 12% during the period, as broad-based declines were observed in all major sub-sectors. Double-digit declines were posted by most sub-sectors, including garments (down 36%), electronics (52%), chemicals (30%), wooden furniture (24%) and non-metallic mineral products (18%).

The slowdown in tourism activity also had a knock-on effect in the non-traded sectors of the economy, particularly wholesale and retail, and transportation, storage and communications, where output contracted by 2.6% and 2.7% respectively in the first three quarters of 2009.  Together with a continued fall-off in foreign financing inflows (as a result of the global recession), poor tourism performance led to a sharp decline in construction sector activity during the period. Despite government efforts to restart public construction projects and to encourage private investors to restart several major hotel developments, activity in the construction sector, which has been a major driver of growth in recent years and is an important employer, continued to contract in the third quarter. Output from the mining and quarrying sector, which relies on demand from the construction sector, contracted by 36% in the first nine months of the year. As a result of the continuing recession, the unemployment rate at the end of June stood at 9.9%, up from 8.6% at the same month in 2008.
Source: EIU Country Report. December 2009

Economic Survey of the Caribbean 2007-2008

The survey provides an overview of the economic performance of countries of the Caribbean Development and Cooperation Committee (CDCC) for the year 2007 and their outlook for 2008. The last chapter presents country briefs with the main macroeconomic developments in 2007 and the outlook for 2008.

In 2007, Barbados recorded an overall GDP growth rate of 3.2%, driven once more by a solid performance in the services sector namely tourism and financial services. The unemployment rate, after six years of consecutive growth commensurately fell at its lowest recorded level to reach 7.4%. Inflation was at its lowest in three years at 4% despite a context of high food and oil prices.

The external sector registered a boom on the capital and financial account due to strong net capital flows that resulted in a balance of payments surplus of 8% of GDP and an increase in net international reserves by more than 30%. Ongoing concerns, however, remain with respect to persistent deficits on the current account, set at 7% of GDP in 2007, and the containment of the overall fiscal deficit.

The latter is set to be above the 2.5% target to reach 3.5% of GDP in fiscal year 2007-2008. Concurrently the maintenance of government debt to around 76% of GDP and the ongoing poor performance of other foreign exchange earning sectors outside tourism and financial services could pose challenges in a context of future liberalization on sustainability of the peg will be a key objective in the future. Following lower public sector demand and a likely decrease in tourism demand from the United States, the economy is expected to grow by 2.7% in 2008. Source: UN ECLAC

The new government of the Democratic Labour Party, elected in January 2008 and led by David Thomson, is committed to follow broad economic policy continuity with a focus on the rising cost of living in Barbados.

Domestic Economic Review for the First Half of 2008

According to the Barbados Budget Prosposal 2008, mirroring the global slowdown, growth in the Barbadian economy slowed to an estimated 1.8% during the first six months of 2008, in comparison to the 4.2% average rate of expansion registered in the corresponding periods between 2004 and 2007.Lower rates of growth in both the traded and non-traded sectors contributed to this outturn.

Average output in the non-traded sectors, the main engine of growth from 2005, grew by approximately 2.0%, substantially below the average first-half expansion of 5.1% recorded between 2005 and 2007.

Real output in the traded sectors expanded by an estimated 1.1%, compared with the 2.4% increase one year earlier, reflecting declines in manufacturing output and sugar production, as well as a moderation in tourism value-added. The 2008 sugar harvest yielded approximately 31,600 tonnes of sugar, some 2,300 tonnes less than the 2007 crop year.

The reduction in tourism output growth, from 3.1% in the first half of 2007 to an estimated 2.7% during the review period, came as April tourist arrivals returned to pre-CWC 2007 levels, leading to a sharp decline in the second quarter of 2008. This was partially offset by a double-digit expansion in the first quarter, as arrivals remained strong despite the slowdown in Barbados’ major source markets during the period.

Main Source:Economic and Financial Policies of the Government of Barbados 2007, Review of the Economy for 2006, Economic and Financial Statistics February 2007

Link:Central Bank Economic Press Releases

The high levels of publicity and exposure of the World Cup 2007 precipitated into large increases in the construction sector (moving from 2.8% to 13.4% in 2005). Other sectors that played a supporting cause were, agriculture (rising from -5.7% in 2004 to 3.5% in 2005) and light manufacturing (increasing marginally by 1%in 2005). In light of the emergence of these industries, the country’s economic advancement could have been predicted, yet, due to negative growth in the countries main source of income (Tourism) economic growth fell by a near percentage point in 2005.

Tourism

Sustainable Tourism Development The Case of Barbados by Kevin Greenidge and Nathali Greenidge

This study examines the sustainability of tourism development in Barbados. Barbados is heavily dependent on tourism and the industry is expected to contribute positively to the country’s continued economic prosperity, social development, physical development and associated environmental health. Tourism can have adverse impacts on the society, if not managed and developed in a manner that is in harmony with the environment and the local population. Issues such as management of the island’s water resources, over-crowding and the impact on the environment are of paramount importance. The analysis indicates that tourism development in Barbados is on a sustainable path in harmony with the environment. Specifically, the economic benefits of tourism will continue to accrue to the Barbadian economy well into the long-term, any negative social effects are manageable and the authorities are implementing various measures to deal with the adverse impacts the industry has had on the environment. Source: Central Bank of Barbados, July 2007

The Report 'Towards A Single Development Vision and the Role of the Single Economy' by Norman Girvan, UWI. 2007, is meant to provide a vision for the development of the Caribbean Community to which all stakeholders can give their support. It serves as the basis for decisions by the Heads of Government on a ‘road map’ for the further implementation of the Caricom Single Market and Economy.