Don’t bank on early rebound
If Barbadian authorities were hoping for a substantial rebound in the United States economy to lift their country’s economic ship out of the doldrums, they should think again.
Instead, advise two of the island’s best known economists, Sir Courtney Blackman and Charlie Skeete, Barbados should plan for an extended period of slow economic growth in the American economy and avoid any optimism about an early return to prosperity based on what happens in the United States.
Skeete, a former senior economic adviser at the Inter-American Development Bank, and Sir Courtney, the first Governor of the Barbados Central Bank, offered that bit of advice after the United States Federal Reserve, America’s central bank of sorts, cut its economic forecast for the United States in 2011 and 2012, and warned about elevated joblessness during the next two years.
“In Barbados we should prepare for a long haul and we should not base our plans on the assumption that the American recession will end in two years,” urged Sir Courtney. “We should base our expectations on a strong recovery in the United States taking much more time to materialize.
“The United States economy is not in a good shape. Barbadians should not be filled with optimism. They should just be careful. No one knows when a strong economic rebound would occur in the United States. The establishment in the United States is in a state of confusion over the economy, and we don’t know how long it is going to last.”
The Federal Reserve, led by chairman Ben Bernanke, cut its economic forecast, reducing it to between 2.7 per cent and 2.9 per cent from its previous forecast of 3.1 to 3.3 per cent made about a month ago. At the same time, the Fed said it expected the jobless rate to remain as high as 8.2 per cent instead of the unofficial target of 5.5 per cent.
“We are still some years away from full employment,” said Bernanke.
Skeete, a former permanent secretary in Barbados’ Ministry of Finance said that the Federal Reserve’s action should dampen any high expectation of an early economic rebound in Barbados.
“Slow growth in the United States would have implications for the Barbados economy like slow growth in the United Kingdom would also have implications for Barbados,” Skeete warned. “The bulk of our rich tourists come from the United States and the bulk of the middle-class tourists to Barbados come from the United Kingdom.
“And the US capital flows affect us; remittances affect us; and these are the big sources of exports of services, the sources of tourist receipts. The slow growth in the United States and the fact that the United Kingdom is going through a stringent austerity programme are also going to affect us.
“If Barbados needs another indication of the urgency of the economic situation, then it can find it in the action and forecast of the United States Federal Reserve, and in what’s happening in the United Kingdom. Barbados should have seen the action of the Fed coming long ago.
“The idea that the economy in Barbados is going to resume growth and grow them out of the current situation without an adjustment is pie in the sky,” added Skeete. “Barbados can fool itself into thinking that the turnaround would happen before it must do anything stringent. That’s folly.
“True, it looked for a while that the United States economy was going to rebound in a very serious way in 2011, but the failure of the housing market in the US to come out of its downturn has put paid to that. There is no real recovery in the US with a collapsed housing market.
“If people’s single biggest investment, housing, is collapsing underneath them, you would have to be irresponsible in the extreme to be going out and spending discretionary income on lavish vacations.
“The US economy, like the world economy, is in for a period of slow growth,” said Skeete. “Barbados should see what’s happening in Europe.”