Case of economic déjà vu?
This week, I was going to write a letter of admiration to Toni Thorne, and congratulate her on her television series being taken up in St Vincent and Dominica. I was then going to look at her journey as an entrepreneur and insert bits of my journey, and finally ask her to go on a romantic date under the stars to our alma mater, which has now been condemned.
Alas, Moody’s came along and downgraded Barbados; so my guess is that I should write about that instead.
Was the downgrade justified? I have read elements of a recent CIBC report that characterized the downgrade as unjustified, citing factors that have already happened, such as marginal economic improvements in recent quarters. The problem with that line of reasoning, from my perspective as a trader, is that ratings should endeavour to be mostly forward-looking.
Imagine that tomorrow will be the same as today because history repeats itself. Hopefully, you are nodding your head in agreement. Those of you who aren’t nodding are probably examining the title of this article with a confused look, since economic déjà vu would imply history repeats itself to some extent.
It is the mark of an educated mind to be able to entertain a thought without accepting it. –– Aristotle
Is this economic déjà vu? I figure some Barbadians must be thinking “not the 1990s again”. That is when we went to the International Monetary Fund (IMF). I thought it might be interesting to compare and contrast what was happening then to what is happening now, looking at what is similar and what is not, since humans are in love with patterns.
I’m sure I can find something for both sides of the debate.
After stumbling around the Barbados Central Bank’s website for a bit, I decided to check the IMF’s website. I can see why investors just focus on a few data points, one of them being debt to GDP ratio.
I can confirm that our debt to GDP ratio during the period 2012 to 2015 is twice the amount it was just before our previous IMF flirtation. That being said, real GDP has doubled since the 1990s. So, in that context, we shouldn’t be too alarmed.
For whatever reason, I couldn’t find the unemployment figures for 1988 to 1990 on the Central Bank’s website.
From various IMF reports, unemployment around that period was between 17 and 25 per cent, which hardly compares favourably with our current reported 11 to 12 per cent. Other indicators such as our recent growth in tourism figures are also cause for optimism as the 1980s and 1990s saw significant declines in tourism, manufacturing and sugar cane production.
Tourism bottomed and rebounded a bit last year, and manufacturing and sugar cane production aren’t as significant now to the economy as it was back then.
Generally speaking, these points and a host of other data suggest we are in a better position. I would caution that similarities lie in rising labour costs, and rising but stabilizing debt to GDP ratios. Barring some outlier, like a hurricane, we shouldn’t be thinking this is quite like the 1990s just yet.
(Craig Harewood is the investment director at Ourinterest Inc., an investment company that trades on global markets and from time to time assists small businesses and boutique investors.)