International credit rating agency Fitch Ratings believes it is still unclear what impact the expected lower global economic growth, largely linked to higher tariffs, could have on the Barbados economy and Government’s finances this year.
Joshua Grundleger, director, sovereigns at Fitch, whose portfolio includes Barbados, said the New York-based firm was maintaining its 2.8 per cent economic growth prediction for the island despite the higher international uncertainty.
“We have not made any changes to growth forecasts for Barbados. Our most recent update was in our March 2025 Sovereign Data Comparator, which is in line with our last rating action [in October],” he shared.
He noted, however, that while the direct impact from tariffs was probably minimal for Barbados at this juncture, be mindful that “global economic slowdowns can certainly be a drag on tourism”.
Based on its April Global Economic Outlook Update titled Trade War Escalation Prompts Deep And Wide Cuts To Growth Forecasts, Fitch does not share the International Monetary Fund’s (IMF) relative optimism about the world economy’s performance this year.
While last week the IMF announced in its new World Economic Outlook that it was lowering the 2025 global economic growth forecast from 3.3 per cent to 2.8 per cent, Fitch says that due to the recent severe escalation in the global trade war, “world growth is projected to fall below two per cent this year”.
This means that “excluding the pandemic, this would be the weakest global growth rate since 2009”.
Grundleger said that regarding risks to Barbados’ economic performance, “the main change since our last publication in October is the considerable increase in uncertainty, which is clearly weighing on the global economy”.
“This is operating through both a pullback in economic activity, particularly investment, and through direct and potential impacts of tariffs,” he explained.
“The economic impact on Barbados, however, is not yet fully clear. There is probably minimal direct impact from tariffs, but global economic slowdowns can certainly be a drag on tourism.
Aim to save more
“We are not expecting a major tourism downturn in the Caribbean as of now, although the very strong growth of the post-COVID rebound, as you know, has already been slowing, at least in part due to other factors.”
Grundleger’s assessment was that “what ultimately matters is how consumption patterns change – and there are effects that could move in opposite directions”.
He elaborated, stating: “For instance, if high tariffs reduce consumption of imported goods, consumers could substitute these expenditures with more services, including travel.
“Similarly, more expensive or longer trips could be redirected to cheaper and/or more local options. Alternatively, consumption could fall considerably as people aim to save more.
“The uncertainty makes it challenging to get a sense of how these dynamics will flow through to Barbados’s economy – and ultimately its government finances – although certainly a significant negative shock would put pressure on the credit profile,” the Fitch representative added.
The credit rating agency said in its updated Global Economic Outlook that it cut the March world growth forecast by 0.4 percentage points and the growth forecast for and China and the United States (US) by 0.5 percentage points.
Fitch said the following about the world’s two largest economies and main trade war combatants: “US annual growth is expected to remain positive at 1.2 per cent for 2025 but will slow to a crawl through the year at just 0.4 per cent year-on-year in fourth quarter 2025.
“China’s growth is expected to fall below four per cent both this year and next, while growth in the eurozone will remain stuck well below one per cent. World growth is projected to fall below two per cent this year; excluding the pandemic, this would be the weakest global growth rate since 2009.”
Fitch also raised its US inflation forecast to beyond four per cent, which it said implied “a stagnation in real wages”.
“We also expect some additional US tariff revenues to be recycled back into the US economy over the next 18 months including through tax cuts. But as the world’s two largest economies slow, spillovers will be felt far and wide, as forecast revisions reflect,” it said. (SC)
