In an era of increasing globalisation, the financial and economic performances and prospects of economies throughout the world will forever be closely connected. This is particularly true in relation to countries’ main trading partners.
A cursory look back at the effects of the 2007/2008 global recession proves that point without ambiguity. Hence, when the global economy is booming, the potential for rapid expansion in the flow of goods, services and other financial assets increases dramatically and many countries are likely to experience higher economic growth rates and lower levels of poverty, consistent with theoretical expectations.
In times of recession, the opposite effects occur. That is precisely what has been happening not only in the Caribbean but also in various other countries across the globe. Why? The reasoning here is simple.
A glance at the national income identity would suggest that economic growth is the result of a combination of domestic spending (broadly defined as the sum of private consumption, investment and government expenditure) and net exports (the difference between total exports and imports of goods and services).
Taken together, these two components represent the internal and external factors that drive economic growth and development.
In times of a global recession, net exports are severely affected and downward pressure is brought to bear on a country’s growth prospects. Hence, more and more energy has to be directed at stimulating domestic economic activity if the country stands any real chance of growing.
It is within this context that building economic confidence locally takes on greatest meaning. Government’s intervention aside, stimulating economic growth and development during a global recession can only result from increasing consumer and investor confidence in the local economy.
Failure in that regard can only redound to more and more economic turmoil. The European experience is a good living example of this. From all available reports, the growth prospects for Europe as a whole in 2013 are extremely weak.
Given all of the developments taking place in many of the economies, consumer and investor confidence are low. It is for that reason that many businesses continue to stockpile inventories to the staggering level of $475 billion in 2012, according to Bloomberg.
Clearly, then, if domestic economic activity in Europe declines in an environment that is not being assisted by external factors, where would economic growth come from?
We in Barbados and the rest of the Caribbean should look toward Europe, learn from those countries’ experiences, and be determined to put mechanisms in place to avoid a similar pitfall.
The Chamber of Industry and Commerce is calling on the government to hold discussions on the way forward in respect of many of the pressing problems confronting the economy.
Such an initiative could only serve to boost economic confidence because if the private sector is allowed to have an input into major policies, then, businesses are more likely to respond positively by way of investment and that will stimulate economic activity locally.
In the absence of any real global economic recovery on the horizon, stimulus for growth and development in Barbados can only come from the domestic side. And that is the simple reality facing us as a people and nation!
(Dr. Brian Francis, the former Permanent Secretary in the local Ministry of Finance, is a Senior Lecturer in the Department of Economics at the Cave Hill Campus in Bridgetown, Barbados of the University of the West Indies)