Barbados Safe For Now – Standard & Poors

Barbados Government and those in the financial sector can breath easy, at least for now.

That’s because the local economy will likely feel no immediate  burn from Monday’s financial meltdown on Wall Street in the United States (US) .

In fact, a leading analyst of respected rating agency Standard & Poors (S&P) believes the upside of the ongoing economic turmoil in the US, which saw finance giants Merrill Lynch agreeing to sell itself to Bank of America for US$50 billion and Lehman Brothers filing for bankruptcy, could be lower oil prices and reduced inflation for Barbados.

S&P’s Director of Sovereign Ratings, Richard Francis, shared this view with the Barbados Advocate yesterday when quizzed on the likely impact current events on Wall Street would have in Barbados.

There is no immediate impact as far as we can tell on Barbados, Francis said.

We will have to wait and see what the impact the turmoil will have on the overall US economy, if any. S&P’s current baseline scenario calls for a shallow but long recession that began in December 2007 and lasts 15 months ending in March 2009, he said, noting this forecast represented only two quarters of negative growth through the upcoming fourth quarter of this year going into the first quarter of next year.

We have not changed the forecast. This will have an impact on tourism. We currently forecast two per cent growth for Barbados in both 2008 and 2009, according to him.

American finance experts said the humbling moves involving Merrill and Lehman had reshaped the landscape of American finance, marking the latest chapter in a tumultuous year in which once-proud financial institutions have been brought to their knees as a result of hundreds of billions of dollars in losses because of bad mortgage finance and real estate investments.

It was also pointed out that even as the fates of Lehman and Merrill hung in the balance, another crisis loomed as the insurance giant American International Group was also on the brink of financial problems. Rocked by losses stemming from the credit crisis, AIG has sought a US$40 billion lifeline from the US Federal Reserve, without which the company may have only days to survive.

Yesterday as the Federal Reserve announced it was not cutting interest rates in response to the crisis, Francis said the financial challenges could eventually turn out to be a positive in terms of oil prices and inflation. The up side for Barbados could be lower oil prices which would signal somewhat lower inflation and lower oil exports, which would aid the current account deficit and balance of payments pressures. It would also help consumers, he noted.

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