The International Monetary Fund’s (IMF) decision to reduce its world growth forecast is a cloud over Barbados’ economic prospects this year, including the performance of the vital tourism sector.
That was the assessment of economists Jeremy Stephen and Dr Ankie Scott-Joseph earlier this week after IMF chief economist Pierre-Olivier Gourinchas said higher tariffs and related uncertainty meant that the global economy was now expected to grow by 2.8 per cent this year and three per cent next year, down from the January forecast of 3.3 per cent for 2025 and 2026.
Presenting the latest IMF World Economic Outlook during the IMF and World Bank Spring Meetings in Washington DC, Gourinchas also said economic growth in the United States (US), the world’s largest economy, was predicted to be 1.8 per cent this year, down from the previous 2.7 per cent that was expected.
“If sustained, this abrupt increase in tariffs and attendant uncertainty will significantly slow global growth,” he warned.
The IMF still expects the Barbados economy to grow by three per cent this year.
Stephen, a former lecturer in banking and finance at the University of the West Indies (UWI) Cave Hill Campus, said that “as it stands, anything that affects the growth in the world economy pretty much results in a slowdown in growth for our economy and the IMF is correct in terms of the general relationship between the introduction of US tariffs and the slowing of any growth that we do have in the global economy this calendar year”.
“So it’s down by 0.5 per cent in terms of the growth forecast, [but] there is going to be growth. Now remember that Barbados’ growth is driven by a few tenets. The one that is not the simplest to know or to identify is imports and through imports, you have the retail sector, which in terms of direct contribution to GDP on its own very much is the largest sector in the country,”
he noted.
“And if prices, if inflation, goes through the roof, one would expect that there may be a slowdown in purchasing patterns.”
Stephen said there were other economic relationships to consider, for example the interplay between investment patterns and a booming construction sector.
“Construction . . . is always a quick fix in terms of . . . inspiring growth in Barbados. The money that comes in to invest in these projects a large, significant portion of it is driven through foreign direct investment, either by the private sector finding funds from outside or Government itself borrowing money,” he explained.
“Lower interest rates would result in more and more sell-offs of US treasuries and debt and people searching elsewhere for yield. So naturally, interest rates will have to rise, which means then that there is going to be a crowding out of investment in US dollarised economies.
“Ours isn’t dollarised, but we are fixed to the US dollar, so therefore there will be pressure in terms of finding money from overseas and bringing it in, it’s going to come in more expensive, at least for the short run, if the US is concerned about maintaining or having enough money for Government to spend via the Treasury markets,” he noted.
Stephen reasoned that this meant that Barbados’ foreign direct investment and construction could be negatively affected.
He also said regarding tourism that “the prospects of growth being somewhat held lower than before would result down the line in probably people having a less disposable income to spend on the expensive jurisdictions such as Barbados. It remains to be seen though”.
Scott-Joseph, an economics lecturer at UWI Cave Hill, indicated that while nothing was certain at this stage, lower world economic growth had implications for Barbados.
“The GDP forecast has suffered from world uncertainty. Government borrowing rates might rise, consumer confidence would decline and investors would grow increasingly worried about the future of the economy. Rising borrowing costs would require governmental spending cuts or tax increases to meet fiscal goals,” she said.
“One of our key growth drivers is tourism. Therefore, we should consider policies that address the evolving business climate, inflation and inbound travel.
“Given the US political and economic condition, these actions might be significant in determining Barbados’ future economic expansion since they would make consumers more inclined to delay their travel plans until they know the direction of global concerns about tariffs and immigration problems.” Noting that vast data underpins the IMF’s forecasts, the economist suggested: “Once the business and investment environment remains on its expected course, Barbados’ economy will perform far better than the projections indicate.”
