Download QUARTERLY Economic Review of Barbados

QUARTERLY
Economic Review
of Barbados
Ministry of Finance
and Economic Affairs
OCTOBER – DECEMBER 2015
Table of Contents
1. Overview ......................................................................................................................... 1
2. Global Economic Overview .......................................................................................... 1
3. Advanced Economies ..................................................................................................... 2
4. Emerging Economies ..................................................................................................... 2
3. Commodity Price Outlook ............................................................................................ 3
4. Impact of International Developments on the Barbadian Economy ........................ 4
5. State of the Barbadian Economy.................................................................................. 5
Real Sector Activity ........................................................................................................ 5
Fiscal Sector Activity ...................................................................................................... 6
Monetary Sector ............................................................................................................. 6
Business Environment Conditions .................................................................................. 7
ii
Overview
The real gross domestic product (RGDP) within the Barbadian economy continues to rise
steadily but at a very anemic pace. Estimates by the Central Bank of Barbados indicate that growth
has improved by two percentage points to reach 0.5 per cent by the end of December 2015.
Unemployment has improved by 0.6 percentage points to reach 11.3 percent at the end of the third
quarter while inflation has dropped to 0.2 per cent. The fiscal deficit was estimated to be 4.0 per
cent of GDP and the stock of foreign reserves stood at $926 million at the close of the year
representing 13.8 weeks of import cover.
Global growth prospects continued to decline as key emerging and developing economies
continue to suffer further fall-offs from low and continued decreases in commodity prices. The
relatively strong growth performance in advanced economies played a very small role in offsetting
the drag commodity bearing developing economies had on global growth. Statistics indicate that
despite positive developments in advanced economies, global growth decelerated to 2.4 per cent,
a 0.2 percentage points decline from the 2014 growth rate.
The decline in commodity prices continue to strip away at any gains recognized from fiscal
tightening within emerging and developing nations. Given the share size and global economic
integration of the largest emerging markets Brazil, the Russian Federation, India, China, and South
Africa (BRICS) it is anticipated that there will be spillover effects to the rest of the world.
Global Economic Review1
Figure 1: Global Growth Projections
Global growth prospects continued to
5.0
disappoint falling short of expectations at the
conclusion of the year 2015. The World Bank
3.0
has estimated that growth has now decelerated
1.0
to 2.42 per cent by the end of the year. This outturn was largely attributed to a further decline
-1.0
in key emerging and developing economies.
2014
2015
2016
Developing Countries
Latin America & Caribbean
All OECD Countries
World (WBG members)
Modest growth developments within major
Source: World Bank
1
2
Projections on growth refers to Countries under the monitoring framework of the World Bank.
Projections are based on World Bank Estimates. IMF’s WEO framework estimates puts growth at around 3.1 for 2015
1
high-income countries in conjunction with low commodity prices were not significant enough to
counteract the crippling effect of the subdued global trade environment. Notwithstanding 2015’s
outcome, it is highly anticipated that during the coming year 2016 global growth will pick-up at
an appreciable slower pace with downside risks titled towards emerging and developing
economies.
Advance Economies
The contribution of major advanced
Figure 2: Select Advanced Economies (Growth Profile)
economies to global growth continues to be
4.0
modest and increasing. This stronger growth
3.0
will be driven by stronger domestic demand,
2.0
particularly
in
the
United
States,
1.0
as
0.0
employment conditions are healthy. Also in
2014
2015
the Euro Area, Credit growth is on the increase
United States
while unemployment is being reduced. The
High income: OECD
UK’s growth performance remains relatively
2016
United Kingdom
Source: World Bank
strong amid economic risks and uncertainty.
Growth has outstripped other major economies, the unemployment rate has fallen, employment
levels are at a high, the fiscal deficit has been reduced, and financial sector resilience has
increased. Japan however, remains fragile despite substantial policy stimulus, weak private
consumption and investment along with poorer Asian demand for Japanese exports are the main
components attributed to this outlook.
Emerging Markets and Developing Economies
Given the size and
global
Figure 3: Emerging and Developing Economies
(Growth Profile)
economic
integration of the largest emerging markets —
8.0
Brazil, the Russian Federation, India, China,
6.0
and
South
Africa
(BRICS)
—
4.0
the
2.0
simultaneous slowdown in all but one of these
0.0
economies could have significant spillovers
2014
effects to the rest of the world. The World
2015
China
Developing Countries
Source: World Bank
Bank estimates that a 1.0 percentage point
2
2016
BRICs
LAC: Caribbean
decline in the growth of BRICS can result in a reduction in growth over the following two years
by 0.8 percentage points in other emerging markets, 1.5 percentage points in frontier markets, and
0.4 percentage points in the global economy. Spillovers could be considerably larger if the growth
slowdown in BRICS were combined with financial market turbulence. Developing economies are
forecast to expand by 2.7 per cent in 2016 before slowing to 2.4 per cent within the period.
COMMODITY PRICES OUTLOOK
Agricultural prices were on average
quarter. Prices fell by approximately 15.8 per cent
at the end of September but rebounded at the start of
5000.00
4000.00
average by 38.6 per cent while Crude oil prices
declined by 22.4 per cent. Coal prices at the end
of the year also decreased by 18.7 per cent.
3000.00
2000.00
1000.00
0.00
The price of precious metals on average
added to slowdown in the global commodity
markets with a 22.6 declined in the average price
of precious metals. Platinum metals registered
the largest decline over the review period by 30.7
3
2015M12
Figure 5: Commodity Price Indices (Select Metal)
the fourth quarter levelled off over the remaining
The price for Natural gas decreased on
2015M11
Energy Prices (Average)
Coal Prices (Average)
Crude oil prices (Average)
Natural gas index
Average Agricultural Product Prices
trending downwards until the end of the third
quarter for the year.
2015M10
2015M09
2015M08
2015M07
2015M06
2015M05
2015M04
2015M03
2015M01
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
2015M02
During the year 2015 commodity
prices offered little return to investors due to ample
supplies and weak demand. At the close of the year
2015 energy prices slumped 13.2 per cent and
prices of non-energy commodities dropped by 1.2
per cent.
Figure 4: Select Commodity Price Indices
(Monthly)
Silver
Precious Metals ($/troy oz)
Gold
Platinum
Other Metals ($/mt)
per cent. This was followed by silver and gold which decline by 18.3 and 14.6 per cent
respectively.
Impact of International Developments on Barbados
Barbados’s economic growth trajectory given the state of the world economy is anticipated
to improve. However, any growth progress may be moderated based on the degree of contagion
possibly emanating from emerging and developing economies particularly China.
These
economies which are marked by a drastic slowdown in industrial output and followed by a glut of
primary supplies presents some downside risk to trade partners such United States and the United
Kingdom. This is despite a relatively small trade share these developing countries have with major
developed economic markets.
A weaker ‘developing world’ cuts export led growth. The fact that most economies are
dependent on Chinese demand for commodities for example, as oil and metals as well as raw
material inputs and machine tools exacerbates the export growth performance and by extension
financial market performance in these economies. This exposes US based Multinational firms
whose investments and debt stocks are intertwined with other developing economies as well. To
illustrate further reports indicate that 40 per cent of revenue generated by S&P 500 companies
comes from foreign sources. 3 This raises concern and will have to be monitored for possible
knock-on effects on investment activity globally.
Notwithstanding these developments it is the level of consumption domestically in major
markets which continues drive economic activity in such countries such as the US and UK.
Consumer spending in the United States increased to 11,322.50 USD Billion in the fourth quarter
of 2015 from 11,262.40 USD Billion in the third quarter of 2015. Also, Consumer spending in the
United Kingdom increased to 291,746 GBP Million in the third quarter of 2015 from 289,515 GBP
Million in the second quarter of 2015. Consumer spending accounts for approximately, 87 per
cent in the US and about 62 per cent in the UK.4
For Barbados, though negative developments in the international community could have
negative knock-on effects to our major trade partners, and by extension to Barbados, it is highly
3
4
http://money.cnn.com/2015/07/26/investing/china-slowdown-impact-us-stocks/
Data sources from Trading Economics
4
anticipated that the domestic demand conditions within those markets will serve as a critical buffer to
effects. Hence, those markets may cushion any pass-through effects to the Barbados market. However,
continued vigilance will be required.
STATE OF THE BARBADIAN ECONOMY
The Barbadian economy continues to show slow but positive signs of recovery, on account of
the tourism sector. However, a number of industries are yet to emerge from the subdued state.
It is
highly anticipated however, that given the number of construction projects set to be executed during
the year 2016, positive spill overs will be realised, particularly among the productive foreign exchange
industries. Currently, the foreign reserves at the end of December 2015, stood at $926 million,
representing 13.8 weeks of import cover which is above the accepted standard of 3 months. Prices
continue to decline at a gradual pace reaching 0.2 per cent and unemployment has been reduced by 0.6
percentage points to 11.3 per cent at the end of the third quarter of 2015.
Provisional estimates of the leading economic indicator, produced by the Economic Affairs
Division, supports the signs of a slow recovery as that index, which provides an early indication of
changes in the economy improved after falling by 0.6 per cent at the end of the third quarter in 2015.
Real Sector

Activity
Real GDP growth is estimated to have expanded by 0.5 per cent at the end
of December 2015. This growth was led primarily by the traded sector
which expanded by 1.6 per cent and aided by a boost in tourism activity
which increased by 6.0 per cent.
Growth estimated
to
improve
marginally to 0.5
per cent. Tourism
is the principle
driver of this
growth.

Key subsectors such as sugar declined by 32.8 per cent, this was followed
by food and manufacturing sub-sectors which fell by 1.7 and 1.5 per cent
respectively.
There were no changes in the electronics, chemicals and
furniture subsectors.

The non-traded sector grew by 0.2 per cent. The business and other
services component was the primary factor supporting growth in this
sector with an increase of 0.6 per cent.

The major sub-sectors which suffered a decline over the review period
included the construction sub-sector with a decrease in output by 3.1 per
cent and wholesale & retails declined by 0.3 per cent.
5
Fiscal Sector

Activity

Revenue flows have
fallen off while
expenditures
continue to grow at

a slightly moderate
pace compared to
the previous year.


Monetary Sector
Activity

Foreign reserves
remained relatively
stable while liquid
assets ratio and
commercial bank
deposits increased.


The fiscal deficit at the end of October 2015 was estimated at around
4.0 per cent of total nominal GDP. This was mainly attributed to the
growing expenditure commitments to public institutions; tax receipts
overall were low despite some buoyancy from land-tax collections.
Current revenue was estimated to have declined slightly by 1.0 per
cent year on year (y-o-y) bringing total revenues down to 1,244.2
million dollars. Current expenditure on the other hand increased by
9.3 per cent to reach $2,321.8 million.
The major component contributing to the increase in expenditure was
current transfers, which when compared to the corresponding period
in 2014 increased by 5.4 percent. This was primarily driven by
transfer payments which increased by 5.4 per cent or 31 million
dollars. Payments to retirees was the principle reason for the surge
in expenses escalating to 144.0 million dollars or an increase of 21.3
per cent in payments.
Value added tax, the major revenue component fell by 8.3 per cent or
40.8 million dollars to end at 448.4 million dollars in collections.
Notwithstanding the performance in VAT collections there was a
significant improvement in land tax receipts of 66.9 per cent
representing a total of 44.6 million dollars in additional revenue when
compared to the previous year’s total.
Debt as a percentage of GDP
At the end of December, the foreign reserves stood at $926 million,
providing 13.8 weeks of import cover. Money supply at the end of
October 2015 increased by 19.9 per cent when compared to the same
period in 2014.
The liquid assets ratio at the end of September 2015 increased to 24.4
per cent compared to 20.1 percent one year earlier. The excess
liquidity ratio of 10.3 percent also increased exponentially from the
5.7 per cent recorded within the corresponding period of 2014 (at the
end of September).
The Treasury-bill discount rate for the same period ended at 2.03 per
cent a reduction of 1.14 percentage points in comparison to the
equivalent period in 2014.
Commercial Bank deposits increased by 6.4 per cent or $543,572.00.
Private individuals account for the major share of deposits with a 50.2
per cent. This was followed by Business firms and financial
institutions which accounts for a 19.3 and 10.2 per cent share.
6
Business

Environment
Index of industrial Production (IIP) - Preliminary estimates at the end
of October showed a decline of 0.7 per cent with the manufacturing
sector itself declining by 3.1 per cent. The manufacturing of wearing
apparel and electronic components were the major industries
Prices continue to
slump when
compared to
comparative periods
in 2014 for all
indices
contributing to the decline in the index registering a decline of 58.7 per
cent and 31.3 per cent respectively. There was however, some growth
registered in major production sectors comprising the index. Chemicals
and electricity & gas sub industries registered relatively moderate
production prospects at the end of the review period increasing by 4.6
and 3.7 per cent respectively.

Producer Price Index (PPI) – Over the review period the Year-on-year
(y-o-y) producer price index approximation for the month of October
indicated that production prices decreased by 2.1 per cent. All prices
within the index registered declines with the exception of other
manufacturing and Beverage products which increased by 3.5 and 0.8
per cent respectively. The major fall-off in prices was registered in the
Petroleum and Chemical products industry by 9.5 per cent followed by
Rubber and Plastics Products (9.3 percent), Fabricated Metal products
(8.8 per cent) and the Furniture industry (6.6 per cent).

Retail Price Index – At the end of October 2015, y-o-y estimates of the
RPI index show that prices in general have decreased by 2.4 per cent.
Significant reductions in the fuel and light prices, which decreased by
22.9 per cent and medical & personal care prices which reduced by 15.5
per cent, were the principle drivers behind the reduction of the index.
The most notable price increases were recorded in the food industry
which increased by 3.7 per cent. This was followed by transport with an
increase of 2.8 per cent and alcohol beverages by 2.2 per cent.
7
APPENDICES
Commodity prices (Oils)
1,500
1,200
900
600
300
-
Coconut oil
Palm oil
Soybean oil
Soybeans
Commodity prices ( Energy and Non energy)
140
120
100
80
60
40
20
0
Energy
Non Energy Commodities
8
Commodity prices (sugar)
0.65
0.5
0.35
0.2
0.05
-0.1
Sugar, EU domestic
Sugar, US domestic
Sugar, World
Commodity prices (meats)
8
7
6
5
4
3
2
1
0
Meat, beef
Meat, chicken
9
Meat, sheep
Commodity prices (Metals and Minerals)
60000
50000
40000
30000
20000
10000
0
Jan- Jan- Jan- Jan- Apr- Jul- Oct- JanMar- Apr- May- JunDec Dec2 Dec Mar Jun Sep Dec Mar
15
15
15
15
2012 013 2014 2014 2014 2014 2014 2015
Jul- Aug- Sep15
15
15
Zinc
1950 1910 2161 2026 2071 2311 2235 2080 2029 2213 2282 2082 2001 1808 1720
Tin
211262228321899226362314621915198981837017422159011580415065150721516415453
Nickel
1754815032168931466118468185841586014393137561283113511128251141310386 9938
Lead
2065 2140 2095 2101 2097 2182 2001 1810 1792 2005 1992 1830 1763 1704 1684
Iron ore
128
Copper
7962 7332 6863 7030 6795 6996 6632 5833 5940 6042 6295 5833 5457 5127 5217
135
97
120
103
90
74
63
58
52
60
63
52
56
57
Aluminum 2023 1847 1867 1709 1800 1990 1970 1802 1774 1819 1804 1688 1640 1548 1590
Aluminum
Copper
Iron ore
Lead
Nickel
Tin
Commodity prices (fruits)
1.20
1.10
1.00
0.90
0.80
0.70
0.60
Bananas, EU
Bananas, US
10
Oranges
Zinc
Commodity prices (cotton)
2.5
2
1.5
1
0.5
0
Cotton
11
Commodity prices (Grains)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
JanDec
201
2
JanDec
201
3
JanDec
201
4
Jan- AprMar Jun
201 201
4 4
JulSep
201
4
Oct- JanDec Mar Mar Apr- Ma Jun- Jul- Aug Sep Oct- Nov Dec
201 201 -15 15 y-15 15 15 -15 -15 15 -15 -15
4 5
Wheat, US SRW
295 277 245 264 264 214 239 223 219 210 201 205 207 188 194 206 203 192
Wheat, US HRW
313 312 285 297 322 263 258 239 231 223 215 210 197 180 173 173 177 174
Rice, Vietnam 5% 434 392 407 391 389 435 414 363 361 354 351 349 346 340 326 342 354 371
Rice, Thailand A1 525 474 425 427 398 449 428 416 411 400 387 376 390 378 360 369 366 360
Rice,Thailand 25% 544 473 382 375 351 400 402 397 392 384 368 365 376 362 347 362 359 356
Rice,Thailand 5%
563 506 423 444 393 433 421 417 410 399 381 376 392 373 357 373 368 363
Maize
298 259 193 210 214 174 174 174 174 172 166 167 180 163 166 171 166 164
Barley
240 202 138 130 138 130 153 189 189 206 195 203 214 203 184 187 188 186
Barley
Maize
Rice,Thailand 5%
Rice,Thailand 25%
Rice, Thailand A1
Rice, Vietnam 5%
Wheat, US HRW
Wheat, US SRW
12
13