Jun 2010 Financial News

Decline in agriculture expected to counter pick-up in tourism

Jun 07, 2010

DESPITE the expectation that economic activity locally will be bolstered by some improvement in the tourism, this island’s number one foreign exchange earner, projected declines in other sectors could have a nullifying impact.

This was the forecast given by international rating agency, Standard & Poor’s (S&P), in their most recent report on Barbados, its current economic standing, and prospects for the short to medium term.

The report stated that overall, Barbados’ economic activity is expected to be flat this year, because it is believed that a pickup in its tourism, which should have a positive impact on the retail sector that was hit hard in 2009, should be counterbalanced by the decline in agriculture caused by a drought earlier this year, causing sugar production to fall by close to 30 per cent in the first quarter.

Starting in December 2008, Barbados recorded six consecutive quarters of negative real Gross Domestic Product (GDP) growth, contracting by 4.8 per cent in 2009, following a decline of 0.8 per cent in 2008.

In their report, S&P noted that the decline was propelled by a collapse in the construction sector, followed by manufacturing, and tourism, each down by 23, 13, and seven per cent respectively.

The point was made however, that the magnitude of the economic contraction is subsiding, with the economy declining by only 0.1 per cent in first quarter of 2010, assisted greatly by the first quarter of positive growth in the tourism sector, following five previous quarters of decline.

Despite difficulties relating this island’s largest tourist market, the United Kingdom, S&P is projecting that the industry will see an increase in arrivals of four per cent this year, compared with the 8.6 per cent decline seen last year.

In the case of the island’s second largest foreign exchange earner, and most significant corporate tax contributor, the international business sector, the rating agency believes that Barbados is relatively well positioned to experience growth in the future.

The report noted that this has also been hit by the global recession, slowing the pace of new registration and cutting companies’ profits. However, it stated that Barbados remains an attractive destination for offshore companies, and pointed to its inclusion on the “white list” of internationally compliant countries, released by the OECD in April 2009, as a position that will enhance its reputation and therefore drive business to the country.

Other areas where improvements are expected relate to consumption and investment, with the S&P report stating that consumption should benefit from large public-sector wage increases paid out in 2009, while investment should increase gradually, boosted by expectations of the imminent start-up of the much talked about Four Seasons project.

“In addition, we expect construction of real estate projects at Apes Hill, Lime Grove, and St. Peter’s Bay to continue”, the report said, noting that new
ventures, such as
Port Ferdinand and Beachlands are in the infancy stages. “Overall, however, we do not expect to see a stronger recovery until mid-2011. This recovery will correlate with an improvement in unemployment and greater investor confidence in Barbados’ main partners, the UK and the US”.


Source:
By Randy Howard
Barbados Advocate
Monday June 7, 2010

http://www.barbadosadvocate.com/newsitem.asp?more=business&NewsID=10685