James Smith - former minister of state for finance says: Any news about the US economy slowing down is really not good news for The Bahamas

More economic woes for The Bahamas predicted
By ALISON LOWE
Tribune Staff Reporter
alowe@tribunemedia.net:


A FORMER minister of state for finance and local business people yesterday expressed concern about the possibility of a “double dip” recession in the United States further prolonging the economic woes of The Bahamas.

Their comments came on the heels of the latest report on Gross Domestic Product, the output of goods and services that indicates the performance of an economy, in The Bahamas’ main tourist market, the United States.

The report showed that the US economic recovery is losing steam, with GDP growth slowing quite markedly in the second quarter of the year, to 2.4 per cent, in comparison to the average 4.4 per cent rate recorded over the past six months, and the greater 3.7 per cent pace recorded for the first quarter of the year.

The slowdown was attributed to what former minister of state for finance James Smith called a key factor for The Bahamas - a fall in the rate of growth in spending by US consumers, from 1.9 per cent in the first quarter to 1.6 per cent in the March to June period.

Even as people in the US continue to suffer from higher unemployment, lower household wealth linked to a decline in the value of stocks and housing, tighter credit lending conditions and the need to reduce debt and bolster savings, many US commentators expressed surprise at the consumer spending figures.

While some international economists said they did not believe the new economic figures suggested the likelihood of a further outright contraction in the US economy - a “double dip recession” - some see this on the horizon. Others suggest that if not a further recession, there remains the potential for an even greater slowdown in the economic growth rate in the United States as the year continues, with all of the implications that will have for The Bahamas in terms of a stagnation or even a further drop off in the visitor arrivals that feed the local economy.

Mr Smith said: “Any news about the US economy slowing down is really not good news for us because it prolongs our recovery but the really important numbers in there relate to consumer spending and consumer confidence. Those really affect The Bahamas and so if they are down that is really not good news for us.

“We need not to hope not just for a recovery in the US but in terms of how the US consumer perceives himself against the economy,” said Mr Smith, also chairman of investment and financial services company, CFAL.

He said that even if the growth rate does not drop any further, the decline that has been registered in the US in this quarter will be felt in The Bahamas.

“I think it does have very serious implications for us,” said Mr Smith. “It would be a delayed affect because one begins to make travel plans three, six months in advance, so someone who intends to come here this winter may cancel that or forego it even if you have fourth quarter (economic) growth.”

Meanwhile, Mr Smith noted that The Bahamian economy is facing its own issues going forward as local businesses deal with the widely-publicised increases in a number of taxes within the 2010/2011 budget.

“The budget was crafted against certain realities like growing debt and unemployment and an attempt to reduce the deficit. That would be in right direction except in my view it was too much ... I think a lower dose over longer period of time might have been the better option,” said Mr Smith of the budgetary measures introduced by the Government in July and their potential impact on Bahamian economic activity.

Chamber of Commerce President Khaalis Rolle told The Tribune that he views the latest figures coming out of the US as a “real concern” for The Bahamas.

“I keep saying you need almost simultaneously both consumer confidence and investor confidence to come back to get this economy back on track. Investor confidence fuels jobs, consumer confidence is fuelled by the prospect of employment and there hasn’t been any major indicator to suggest they were coming back strongly,” said Mr Rolle.

Given that the majority of The Bahamas visitors from the US are “middle class Americans” who usually save or borrow to go on vacation, Mr Rolle said he sees the potential for “our (tourism) numbers to begin to be impacted again” based on the latest economic indicators coming out of the US - yet another reason, he added, to diversify the Bahamian economy away from its dependence on the US tourist market.

Meanwhile, speaking of a potential double dip recession, Mr Rolle said: “The second time round usually isn’t as bad because people won’t react with level of panic they did when crisis first hit.

“We saw at the beginning of the crisis how all of major resorts started to lay off people so if there is a double dip recession it may not be as hard as initial hit can guarantee you there will be some impact.”

A Government economic source, speaking off the record, said that in his opinion the figures do not likely herald another recession but just another indicator that the US economic recovery, and hence The Bahamas, is going to be slow and protracted in comparison to others historically.

He added that it may be too early to say if the economic figures presage a further recession, as they only represent economic activity in one quarter of the year.

“On the path to recovery there are many ups and downs. The key thing to realise is the reality is what you had is a financial collapse. In 2001 the recession lasted six or nine months, so you’re looking at least a year or two longer than that,” he suggested.

Asked whether in his view the 2010/2011 Budget was crafted with the potential for a double dip recession in the US in mind, the source said: “I think the budget reflects fact that the recovery period is uncertain, it’s a move towards fiscal consolidation.”

August 03, 2010

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