Increasing Downside Risks in Consumer Market Outlook for 2018

The downside risks to our forecasts for the Barbados economy are particularly prevalent in the consumer market, as consumers are likely to bear the brunt of the budgetary measures introduced by the Government of Barbados in June 2018. Growth in nominal personal consumption has been depressed since 2014, a trend we expect to continue in 2018 (see Figure 1).

Figure 1: Growth in Personal Consumption

The timing of the government’s revenue-raising measures is expected to exacerbate the already strained pockets of Barbadian consumers. Consumers’ can either spend their earnings, savings or credit and, as shown in figure 2, the trends in inflation-adjusted indices for all three funding sources have been declining. Our estimates for 2017 suggest that real loans[1], real savings and real wages all decreased during the year, with real wages reaching its lowest point since 2014. In 2018, we are forecasting a further deterioration, particularly with respect to real wages and savings.

Figure 2: Trends in Inflation-Adjusted Indices of Consumer Funding Sources

The impact of a contraction in the consumer market is likely to be felt across the entire economy, although providers of non-essential goods and services will be the first to be affected. An analysis of the official GDP statistics showed that the consumer market accounted for 86% of GDP in 2015. As such, any shrinkage in the consumer market will have broad economic effects. Worsening our outlook is the fact that more than 1,500 persons have left the labour force and the market has lost roughly 4,200 jobs between 2008 and 2017. Unemployment has persistently remained in the double digits for 7 years – apart from a short-lived improvement in 2016 – and could possibly worsen in 2018, if companies are forced to lay off staff in response to the reduction in consumer spending.

The results of the consumer confidence survey conducted by Antilles Economics in May 2018[2] (before the release of the 2018 budget) confirmed that Barbadian consumers believed that the economy and business conditions were generally worse in 2018 than they were in 2017 (82% of respondents). Furthermore, 43% believed that their household was worse off financially than one year prior. When asked to consider their income, expenses and savings situations within the last 12 months, 25% stated that their income was lower, 79% noted that their expenses were higher and 61% believed that they were saving less. Looking ahead, Barbadian consumers appeared to be more optimistic about their income in the future – 41% believed they would earn more one year from now – but pessimistic about their expenses and savings, with 47% stating that they expected their expenses to be higher and 79% believed they would need to save more. Together, these results reaffirm our belief that consumers will cut back spending in the short- to medium-term.

[1] Includes consumer credit and credit cards. Does not include mortgages, which typically exhibit a different trend and reflect latent housing demand.

[2] The consumer confidence survey was conducted online during May 2018 with more than 350 consumers in Barbados. The results were weighted by gender and age based on data from the 2010 Population Census.

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