It has been widely recognised as the most difficult economic period in recent times, but the current recession has been “much less severe” than two of three similar downturns felt in the last 40 years.
That’s the conclusion of a Central Bank of Barbados team which recently studied the issue. Economists Darrin Downes, Jason La Corbiniere and Simon Naitam, in a paper on the topic The Anatomy Of The Barbados Recession: Trends, Causes And Comparisons, found that “the relative scale of the global economic and financial crisis that began in 2008 suggested that the resultant decline in Barbados’ economic output would have been substantially greater than in other contemporary recessions”.
Their research illustrated that “the magnitude of the impact was much less than expected and, indeed, much less severe than two of the three downturns within the last four decades”.
“Notably, however, the slow pace of recovery during the current recession has resulted in an “L-shaped” output dynamic, indicating an uncharacteristic drag on economic recovery.
“Given the strong correlation among the business cycles, the protracted recovery periods in three of Barbados’ main trading partners have exacerbated the situation,” the paper said.
“However, [International Monetary Fund] projections suggest that a return to sustained economic growth in Canada, USA and UK will follow shortly, increasing growth prospects for Barbados.”
The researchers observed that since the late 1970s, the Barbados economy had experienced four recessionary periods, namely 1981 to 1983, 1990 to 1993, 2001 and 2009. They pointed out that while the combined effect of the most recent episode and the ensuing four years of weak growth were not as severe as previous recessions, “the protracted nature of the current economic recovery has generated much debate and concern”.
The Central Bank paper called the current recession “different”, since “at its onset, only one period of decline was recorded, followed by a four-year period of modest output growth, averaging 0.2 per cent per year through 2013.
“In contrast to prior recessions, however, although the economy quickly stabilised after the 2009 decline, there has been a continued drag on growth such that the economy has recaptured just 20 per cent of the total losses in the five years since the recession began. This average rate of recovery of roughly four per cent per year is well below the 18 per cent recorded in previous periods, causing an “L-shaped” pattern,” it noted.
“However, it is noteworthy that negative growth did not continue to hamper the economy in the immediate aftermath as occurred in 1982 and 1991 to 1992, signalling that the Barbadian economy was resilient enough to withstand the world’s greatest recession in almost a century.”
The document therefore did not find it surprising that “the persistently low growth rates in Canada, the UK and US since 2008 have been reflected in anaemic growth in Barbados, following initial steps toward recovery in 2010 and 2011”.
It added that IMF projections “suggest there will be a return to economic growth in these large economies from 2014 onward, raising expectations that Barbados’ growth will react to this signal in the manner it has in the past”.
The researched also observed that the need to stimulate trade-related foreign exchange earnings was “amplified during global economic slowdowns, as these periods are usually characterised by sudden stops in capital flows, accompanied by widening emerging market spreads”.
Future prospects for growth, the paper added, were “heavily dependent on the fortunes of Barbados’ main international trading partners and the traded sectors’ ability to capitalise on an improvement in the external environment”.
(SC)