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Caribbean Islands Macroeconomic Overview
Annual economic growth in the 1960s and 1970s averaged 5
percent. The 1980s, by contrast, saw little or no real growth in
the economy. In addition to being affected by the global recession
in the early 1980s, the 3.5-percent growth of GDP in 1984 was
offset by near zero growth in 1985 because Barbados' leading export
sectors all performed poorly. In 1985 the economy expanded slightly
by 0.3 percent, but only because the nontrading sectors, such as
mining, quarrying, utilities, construction, and government
services, performed well. Otherwise, Barbados would have
experienced a decline in GDP.
Among the most disturbing economic developments for the island
in the 1980s was the use of protectionist policies by Trinidad and
Tobago and Jamaica with respect to clothing and other goods that
faced strong regional competition. The tourist sector also slumped
in the early 1980s, falling victim to a strong Barbadian dollar,
which greatly reduced the number of tourist visitors from Britain.
Tourism lessened because of the deterioration in the exchange rate
of the British pound that accompanied the strengthening of the
United States dollar. The United States dollar is tied to the
Barbadian dollar at a fixed exchange rate.
Preliminary statistics for 1986, however, suggested that the
economy was improving dramatically, registering an annual growth
rate of 5 percent. This improvement was primarily the result of
enhanced performance by tourism, manufacturing, and agriculture,
the three sectors generating foreign exchange earnings.
External factors also improved when the United States dollar
began to depreciate in 1984. The depreciation of the United States
dollar increased the foreign exchange rate of the British pound
sterling in Barbados and led to a 25-percent rise in British
visitors. Tourism for the first three-quarters of 1986 increased
3.2 percent; the manufacturing sector registered a 9-percent
increase in production over the same period because of a recovery
in chemicals and processed foods. Nonsugar agriculture also
improved. The electronics industry, however, continued to decline
because of strong Japanese competition, and textiles still faced
regional trade restrictions.
The quick turnaround in Barbados' aggregate economic
performance in 1986 graphically demonstrated its strong dependence
on external markets. To a large extent, the economy's overall
performance in the 1980s paralleled that of the leading export
sectors; the economy, however, has been able to survive periods in
which trade was sharply reduced.
The growth and diversification of the economy since World War
II did not result in substantial new employment opportunities. The
unemployment rate exceeded 10 percent throughout the 1980s; it
averaged 18.7 percent in 1985 and 19 percent in 1986. There were
three primary reasons for high unemployment. First, the decline of
the agricultural sector in favor of tourism resulted in a less
labor-intensive economy, causing a slow, yet inevitable,
displacement of agricultural workers. Second, employment figures
also reflected improved productivity across sectors. As
productivity grew after World War II, fewer workers were needed
even though the economy had expanded. Finally, Barbados' relatively
large population also contributed to the development of an
entrenched unemployment base.
In 1985 the services sector, including government workers,
accounted for 35 percent of the work force. The second largest
employer was restaurants and hotels, which had a combined
contribution of 22.7 percent of the work force; this was followed
by manufacturing (13.2 percent), agriculture and fishing (9.8
percent), and construction and quarrying (7.6 percent).
Because agriculture retained only a small percentage of the
work force as the economy diversified, the manufacturing sector
began to play a pivotal role in absorbing the unemployed. In the
1985-86 period, however, manufacturing experienced severe problems
as a result of international competition and regional trade
imbalances that directly affected employment levels. By 1986 it
appeared unlikely that alternative jobs for the newly displaced
manufacturing workers could be found.
Historically, Barbados has experienced periods of high
inflation caused by both internal and external forces, but external
causes have been responsible for the more acute inflationary
periods. Domestic inflation has been fueled by government
overspending financed by increasing the money supply, excess demand
caused by import restrictions, and large real wage increases.
Because of the open nature of the Barbadian economy and its heavy
reliance on foreign markets, inflationary pressures also were
exerted from abroad.
Since 1981, however, Barbados has experienced a steady decline
in its inflation rate; the rate fell from a high of 14.6 percent in
that year to less than 2 percent in 1986. The work force, as a
whole, fared well during this period; wages rose faster than prices
each year. Although wage hikes could not be justified based on
productivity gains, they apparently did not have a significant
impact on the general price level as evidenced by the decreasing
inflation rate.
Data as of November 1987
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