Posted on

BEHIND THE HEADLINES: Don’t throw caution to the wind


TONY BEST

BEHIND THE HEADLINES: Don’t throw caution to the wind

Social Share
Share

Richard Francis, Standard & Poor’s economic analyst, may not be a doubting Thomas, but his words about Barbados’ prospects for growth bring him close to saying “seeing is believing.”

And his caution speaks volumes about why he isn’t rushing to predict there is “light” at the end of the proverbial economic tunnel.

“I would be a bit more cautious about that, the light at the end of the tunnel” scenario, was the way he put it to BARBADOS BUSINESS AUTHORITY when asked if Barbados was inching towards a turnaround in fortunes.

Reasons abound for his approach. At the top of the list is the fact that Barbados’ economy remains “pretty weak”, a state it was in even before the effects of the global economic crisis slammed the country, said Francis. Another is that the flow of foreign direct investment isn’t as strong as Bajans would like it to be. Thirdly, chances of economic expansion this year are virtually non-existent and Barbadians may have to wait at least until next year before there is any growth, added the analyst.

Indeed, the Central Bank’s forecast calls for less than half of one per cent expansion this year, and Francis was quick to assert that there was little, if any difference between the bank’s forecast and recording no growth at all.

S&P is sending Francis to Barbados next month for talks with Government, the private sector, labour unions and the Opposition in order to see and feel the country’s economic pulse for himself. He thinks any progress towards economic recovery would depend on what happens in tourism in general and some key hotel projects in particular, especially the Four Seasons resort and Sandals.

“It really hinges on these hotel projects,” he said. “It seems as if (finally) they are going to get off the ground but we have heard this over and over again, especially with Four Seasons, and that’s why I would be a little bit more cautious” in making predictions about what was in sight, he declared.

“Until I actually see people working and buildings going up” on those projects he wouldn’t feel confident saying that at last things were moving in the right direction. As a matter of fact, Barbados seems to be lagging behind its Caribbean neighbours.

“Barbados depends on tourism as much as the rest of the Caribbean and a lot of countries in the Caribbean have actually started to see some pick up but you have not seen that in Barbados,” Francis noted. “That’s going to be key for Barbados and it would be partly driven by these hotel projects. It would also be important to keep up the airlift to the country. One of the reasons for the fall in tourism from the US market was that Barbados lost the direct flight from New York. It is important that we keep an eye on the tourism numbers and how it is reaching key markets.”

That brings us to another vital indicator: the flow of foreign direct investment into Barbados and its effects on foreign reserves.

“The flow of foreign investments would be directly related to these (hotel) projects. A reason why the foreign reserves fell last year was that Barbados wasn’t getting the foreign direct investment it needed,” Francis asserted.

Francis described the reserves as being “relatively healthy” but said in the same breath that the Government must continue to keep a close watch on them. After all, any discussion about reserves brings the fixed exchange rate into sharp focus.

“I think the Central bank and the Government are well aware of that need and are making the corrections when they have to,” he said. “You have to keep an eye on the reserves although they are relatively healthy because they can have an impact on the exchange rate. I wouldn’t say the exchange rate is under pressure because that would be a bit alarmist.”

Next is the issue of inflation and what it means to economic performance.

“The fact that the inflation rate has been down in the past year is a good thing and that means the financial imbalances are not as thick as they were before,” Francis said.” If you look at the inflation rate since the financial crisis it has been fairly high, much higher than the US, indicating a loss of competitiveness.”

 Unemployment is another thorny problem and he predicts it may get worse before it improves.

“That is one of the key factors. With the Government’s cuts, that situation is going to have an impact on unemployment. Going back to the projects, to the extent that they are able to get going that should help. With heightened construction, people would be hired and afterwards more people would be hired to work in the hotels would signal that the private sector is taking up some of the slack which is needed,” Francis said. “But in the short-term you can expect unemployment to rise.”

 

LAST NEWS