Economy faces pivotal test after year of stability, economist warns 

The economy has achieved a significant degree of stability, but the real challenge now is translating those gains into tangible improvements for workers and households, a leading economist has cautioned.  

Professor Troy Lorde, Dean and Acting Director of the University of the West Indies’ Shridath Ramphal Centre, told Barbados TODAY on Thursday that the 2025 Economic Review presents a clear picture of sustained fiscal and external discipline.  

Prof Lorde said the 2025 Review showed that Barbados had achieved a year of macroeconomic stability, with real GDP growing by 2.7 per cent, inflation slowing to 0.7 per cent on a 12‑month moving average, a primary surplus of 3.3 per cent of GDP, and international reserves holding at around $3bn – equivalent to 27.4 weeks of import cover. He added that these figures reflected sustained fiscal discipline, favourable external conditions and a recovery that had largely held its footing.  

Yet Professor Lorde cautioned that stability does not equate to shared economic gains.  

“The same data show that while unemployment declined to 6.6 per cent, labour force participation also fell, largely because of increased retirements and higher school enrolment. In other words, part of the improvement in unemployment reflects demographic shifts rather than net job creation alone. That distinction matters. Without it, persons would be left with an incomplete picture that risks overstating labour‑market strength while understating the structural challenges that still shape everyday economic experience.”  

The review highlights the country’s success in controlling inflation, but Lorde urged caution. “Inflation slowing to 0.7 per cent stands out as one of the most eye‑catching achievements in the 2025 Review. It signals a clear easing from post‑pandemic price pressures and reflects a more benign inflation environment than in many comparable economies. Yet the Review is careful to explain that this outcome was driven primarily by external price relief – notably lower international oil prices and falling freight costs – rather than by underlying domestic productivity gains, increased competition, or reduced mark‑ups within the local economy.”  

Household budgets, he noted, remain under pressure. “Point‑to‑point inflation rose to 1.7 per cent by November, as domestic cost pressures re‑emerged. Increases in housing, utilities, insurance, and dining services, along with higher food prices linked to adverse weather and supply constraints, placed renewed pressure on household budgets. These category‑specific increases matter because they are concentrated in essentials. Many households – particularly renters and lower‑income families – are likely to experience inflation more acutely than the headline average suggests, even in a low‑inflation environment.”  

Tourism, the review shows, remains a strong driver of growth, but Lorde warned against over‑reliance on a narrow set of markets.  

“Arrivals from the United Kingdom declined by nearly 6 per cent, reflecting persistent cost‑of‑living pressures in that market and reduced seat capacity. More broadly, the pattern of recovery reveals an increasingly US‑concentrated tourism profile, which heightens Barbados’ exposure to shifts in US economic conditions, policy decisions or geopolitical shocks. Tourism is growing – but it is doing so in a way that deepens reliance on a narrower set of external drivers, a risk that warrants careful attention going forward.”  

On debt, the review recorded a continued decline in the debt‑to‑GDP ratio to 94.6 per cent, though Lorde stressed the importance of context.  

Professor Lorde said the reduction in the debt‑to‑GDP ratio reflected GDP rebasing, which mechanically lowers debt ratios by increasing the denominator, strong nominal economic growth and the maintenance of primary fiscal surpluses. He noted that while these factors improved headline indicators, they did not necessarily indicate a fundamental easing of debt pressures. 

At the same time, gross financing needs rose sharply as the government undertook early repayments of Eurobonds and IMF obligations. Debt service increased to 12.9 per cent of GDP, and external amortisation surged, placing pressure on cash flow even as interest costs were partially contained. He added that this pointed to prudent debt management rather than distress, but also highlighted that Barbados was still operating under tight fiscal constraints.  

Prof Lorde also addressed common misunderstandings about GDP rebasing and unemployment trends.  

“Rebasing does not mean that the economy suddenly expanded in real terms or that new wealth was created overnight. It reflects an improvement in measurement – updating price weights, sectoral coverage and data sources so that GDP better reflects the current structure of economic activity. 

Without clear guidance, the public may wrongly infer that economic performance has dramatically improved, or that fiscal space has materially widened. Similarly, a fall in unemployment is not necessarily proof of net job creation. Employment levels edged down slightly, and more people left the labour force for education or retirement.”  

External risks, Professor Lorde noted, remain real. Geopolitical uncertainty, trade policy shifts, weather‑related shocks and supply disruptions could alter the trajectory of growth.

He said: “The economy is on stable footing, but the path ahead is not without risk.

“The issue is no longer whether the country can stabilise its economy. That phase – defined by fiscal repair, external balance and macroeconomic control – has largely been achieved. What now confronts policymakers, businesses and households alike is a more demanding question: can Barbados convert stability into higher productivity, rising wages and greater economic resilience?”