Slow Economic Growth for the Caribbean

Tony Best | 3/28/2012, 10:10 a.m.

A resurgent job market that is lifting the U.S. economy out of the doldrums, sending the stock market to its highest point in years isn't going to return Jamaica, Barbados, the Bahamas and their neighbors to robust levels immediately.

In essence, the impact of America's increasingly positive economic picture on Caribbean island-nations is "going to be gradual," lagging behind what's happening in the U.S. and any growth in Jamaica and the rest of the region, with the exception of Trinidad and Tobago and Guyana which have natural resources is expected to be "slow."

So said Richard Francis, Director of Standard & Poor's Sovereign Ratings Group, who told the Carib News York that countries in the region were being adversely affected by a mix of their high debt levels and the global recession, both of which make it difficult to predict when the island-nations would see any robust economic growth.

"It's hard to say if the worst of the economic difficulties in the Caribbean have passed," was the way he put it in an interview from his Wall Street office. "A lot of the governments in the Caribbean started out with relatively high debt levels and obviously it has been exacerbated by the global recession. A lot would depend on growth prospects and fiscal adjustments. In terms of the economic prospects, there should be a gradual recovery when you take the debt overhang. But that's going to be a difficult process to work through.

Caribbean nations that range from Jamaica, St. Kitts-Nevis and Barbados to St. Lucia have some of the highest debt to GDP (gross domestic product) ratios in the developing world and that's going to be a negative factor on their pace of growth.

In the U.S., the Dow Jones Industrial Average recently closed up for the seventh straight session, reaching 13, 252.76, the highest close since the last day of 2007; Standard & Poor's 500 Index ended above 1,400 for the first time since 2008; unemployment applications fell last month to a seasonally adjusted 315,000, matching a four year low; rising automobile sales and increasing demand for heavy equipment; a jump 3.3 per cent in wholesale prices, the smallest year on year gain in almost two years; and an indication that inflation is being contained suggest, say top economists in the U.S., such as Paul Ashworth of Capital Economics and Robert Kavcic at BMO Capital Markets, the U.S. economy was slowly improving.

Francis, who keeps tabs on the economic performance of some Caribbean states, Grenada included, said that the slow U.S. recovery "was bound to have some spill-over effect on the Caribbean region" but a key indicator of things to come was America's jobless rate which remained at about 8.3 per cent.

"Obviously if you don't have a job in the U.S. you are not likely to go on a vacation (in the islands) and I think there will be a lag in the Caribbean," he added. "We do expect some kind of recovery, but it would be pretty modest. Once unemployment starts trending down in the U.S. you can expect an increase in the tourism sector in the Caribbean. For the investment projects in the region the economic performance of the U.S. is also going to be very important for the various countries. But there is going to be a lag.

"In the Caribbean, tourism has been very slow to recover and a lot of the investment projects that were put on hold are only coming back on line gradually," Francis added. "For most of the region it's going to be a very slow recovery. The credit rating actions that we have taken across the Caribbean reflected the economic downturn and the increasing levels of indebtedness. That's why there have been several negative rating actions including those for Barbados, the Bahamas, Jamaica and more recently Belize. The Bahamas is still solidly at an investment grade, despite the downgrade. Jamaica actually went to default and is going through a restructuring. Although we don't rate St. Kitts-Nevis, it's our understanding that it is going through restructuring as well. In Belize, the ruling party which was recently re-elected is talking about restructuring as well.

"So, with respect to creditworthiness we have seen some negative trends throughout the Caribbean," said Francis. Tony Best is a writer/reporter for the New York Carib News.