by MICHELLE SPRINGER

GLOOMY ECONOMIC FORECASTS internationally are casting their own dark clouds on Barbados' economic climate.

With recent price hikes in fuel, flour and cement, many have been postulating on the possible backlash for the local economy.

Opposition Leader Mia Mottley was one such voice: "If people stop spending . . . and stop investing and bringing on new projects, then there will and could be very likely . . . a negative impact on overall economic growth this year and could lead to some level of economic stagnation," she said recently in response to last week's announcement by Prime Minister David Thompson of higher petrol, diesel, kerosene and liquified petroleum gas (LPG) prices.

Having forecast negative economic growth in the world's economy in its recently published World Economic Outlook, the International Monetary Fund did not spare the Caribbean basin from the impact of the United States' contracting economy, which the report attributed to the declining housing and financial markets.

One economist, Winston Moore, lecturer in the economics department at the University of the West Indies and a floor member of the Barbados Economic Society, contends there is no need for panic.

"Unfortunately, individuals seem to have drawn an incorrect correlation between oil prices and the overall cost of living. The average individual consumes a large variety of goods and services: food, beverages, housing, fuel, clothing, and so on. Therefore, when economists evaluate changes in the general price level, they attempt to capture changes in prices of this entire basket of goods and services consumed.

"To simply pull out fuel or food alone and state that since fuel has risen by over ten per cent, the cost of living has increased by more than ten per cent would be erroneous," he told the SUNDAY SUN.

President of the Barbados Economic Society, Anthony Johnson, helped to put the issue in perspective.

"External shocks of whatever nature can contract the economy, leading to reduction in real output and job losses. In other words production costs rise and feed their way into the economy in high prices. Real incomes fall, consumers adjust but many could also see a reduction in their standard of living," he warned.

While he did not suggest the local economy was heading for a recession, he did anticipate a contraction, and explained that as downturns in the United Kingdom and Europe became greater, the impact here would increase.

As it stands, although the economy is slightly below the three per cent growth figure targeted by Government, as stated by Johnson, there is no immediate claim evidence of inflation, Moore suggested.

"If one looks at the entire basket of goods and services consumed in Barbados, the measured change in prices – obtained from the Retail Price Index published by the Barbados Statistical Service – reported for most of 2007, was lower than in 2006 and 2005.

"For the 12-month period ending September 2007, the general price level in Barbados had risen by 4.4 per cent, compared in 7.6 per cent in 2006 and 5.1 per cent in 2005. Once one looks at the issue from a wider perspective, it therefore seems that contrary to popular opinion, there is no runaway or rampant inflation in Barbados," he said.

Though the impact from the external economic crisis is inevitable, Moore said there was no immediate fallout.

"Fortunately, United States and Barbadian business cycles are not perfectly synchronised. Barbados tends to lag behind the United States by about six months or so. If real economic activity in the United States slows during the first quarter of 2008, it would take about two quarters for those effects to significantly impact on Barbados," he explained.

"This implies that the policymakers in Barbados should take into account the prospects for the United States economy in their short-term policy plans," he added.

Being able to forecast future economic status will depend on many variables, Moore indicated.

He considered the best way to gauge economic status was to examine "leading economic indicators", namely imports of intermediate goods; imports of capital goods; employment growth; business deposits and private deposits.

"The latest import figures available suggest that non-oil intermediate goods imports were up by about three per cent for the 11-month period ending November 2007 [latest available figures], compared to about four per cent over the same period in 2006.

"In contrast, capital goods imports were down nine per cent over the review period. However, this seems to have been largely due to a large one-off transaction in 2006," he added, noting this was probably in preparation for hosting the Cricket World Cup final.

Another good indicator of economic activity, Moore outlined, was employment. Using the most recent statistics, employment is estimated to have risen by 2.5 per cent in the third quarter of 2007, following a decline of about 2.2 per cent over the same period of 2006.

"In terms of deposits, the fourth-quarter change in business-firm deposits was 3.4 per cent in 2007 compared to 10.6 per cent in 2006, while the growth in private individual deposits was on par with that reported in the previous year.

"The analysis of the import, employment and deposit figures above, therefore, point towards a slowing in economic activity – as should be expected after the bump in output the economy would have received from the World Cup in 2007", Moore concluded.

Johnson shared this position, emphasising the importance of foreign exchange earnings, primarily in the areas of tourism, on the overall growth figures.

"We might be a little lower but that will all depend on what is the final outcome for tourism figures and tourism receipts. These will be the key things," Johnson added.