One of Canada’s largest banks with operations in Barbados is predicting 1.5 per cent economic growth for the island this year and two per cent in 2017.
This compares to the 1.8 per cent growth forecast by the Central Bank of Barbados and 0.9 per cent by the Caribbean Development Bank for the island for 2016.
In its World Economic Outlook released last month, the International Monetary Fund had also projected 2.1 per cent growth, which was well over the -0.5 per cent forecasted for Latin America and the Caribbean.
In addition, the IMF had said it expected a slightly better growth rate of 2.3 per cent next year, although it predicted a slowdown to 2.0 per cent in 2021.
However, in its recently published Caribbean Regional Outlook newsletter for Spring 2016, Scotiabank said there were “encouraging” signs that the Barbados economy was set to improve this year, up from the 0.5 per cent performance recorded last year.
Tourism remains the main driver of growth, and with a number of investment projects in the pipeline over the next four years, Scotiabank said there should be some spill over benefits for construction, real estate and retail activities.
But while the deficit was expected to reach around five per cent of GDP this fiscal year, the bank pointed out that the country remained constrained by a number of factors, including ongoing fiscal retrenchment and elevated unemployment. It further acknowledged that the island was “highly susceptible” to external shocks given its high fiscal deficit and rising debt burden, as well as its high reliance on tourism.
Government debt reached 106.8 per cent of Gross Domestic Product (GDP) in 2015, which is double the 2007 level.
However, the bank expects this situation to stabilize at around 107 per cent through 2017, even though it remains watchful of increased crime and several reported cases of Zika virus, which also puts the economy at risk.
“The UK’s in-out EU referendum could also weigh on British consumer sentiment and travel spending, which is particularly concerning for Barbados given that the UK is the island’s largest source of visitors,” the bank also acknowledged.
As for the Caribbean as a whole, Scotiabank said the economic outlook remained fragile, adding that growth prospects for this year were relatively muted and subject to considerable downside risk “given the region’s vulnerability to external demand shocks and internal challenges”.
It added that elevated government debt remained “an impediment to growth and credit quality improvement”.
“The Caribbean has become one of the most indebted regions in the world. According to the IMF, gross government debt-to-GDP has risen to an average of roughly 75 per cent, which is well above sustainable levels for small, open and undiversified economies,” Scotiabank said, pointing out that build up of debt was mainly due to a slump in tourism post 9/11 terrorist attack, the 2008 global financial crisis and natural disaster.
“Fiscal imbalances have also been a problem,” it added. (MM)