Barbados to feel effects of US financial turmoil

BRIDGETOWN, Barbados, September 25, 2008 – The Barbados economy is expected to feel the effects of the turbulence in the United States financial markets later, rather than sooner.

Central Bank Governor Dr Marion Williams said yesterday that while the situation is unlikely to have a significant impact on Barbados immediately, “as the US economy slows or goes into recession as it copes with these difficulties, the result could be a slowdown in the growth of the Barbados economy going forward”.

She added that recession in the United Kingdom and European economies would also impact adversely on the country’s tourism prospects and investment inflows.

But she was optimistic that the Barbados economy could withstand the effects of the turmoil.

“The Barbados financial system should remain sound although there may be some loss in value – realised and unrealised – on US dollar fixed income securities held by financial institutions, including the Central Bank, as securities’ prices in the US markets tumble,” Dr Williams said.

And even as the US government seeks to provide a US$700 billion bailout for American businesses in financial crisis, the Central Bank Governor said that could also have an impact on the Barbados economy.

“Over the longer term and into 2009, given the size of the bailout by the US government, we can expect larger US fiscal deficits, possibly a further depreciation in the US dollar and a likelihood of a longer US recession than was anticipated. The likelihood of a global slowdown also becomes greater. The international credit markets are likely to be hesitant to lend for a while until markets settle,” she said.

“However, given the healthy level of Barbados’ foreign exchange reserves, this is unlikely to be significant for Barbados at the level of official borrowing at this time, but foreign investors into Barbados who were depending on borrowing on the international markets may be put on pause.”

But the Central Bank Governor has found a silver lining in the dark clouds hanging over the global economy, noting that “the one positive outcome of all this is that if there is a global slowdown as expected, and therefore lower demand for oil, oil prices should contract”.