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* US Recession Fears Bahamas Economy Still to GrowWhile US financial observers and policymakers struggle to avert what some see as an impending recession in that country, State Minister for Finance Zhivargo Laing says The Bahamas will weather the bumpy ride just fine, providing the downturn doesn’t last too long.
Consumer spending in the US, which accounts for two-thirds of America’s economic activity, had been showing resilience even as gas prices rose and the housing market fell, but observers have noted a sharp pullback in that spending that, if continued, may tip the US economy into recession.
In fact, a chief economist at a leading financial commentator in the US was quoted by the Associated Press as saying its possible that the US has already entered a recession.
"When all is said and done, we have probably entered into a recession. The weakness in the holiday season was the tipping point," said Carl Steidtmann, chief economist at Deloitte Research, who forecasts a decline in consumer spending that takes inflation into account in coming months.
It would be the first since 1991, when the savings and loans crisis precipitated a recession.
Mr. Laing told the Journal on Tuesday that while a US recession is something that will always be a big deal for The Bahamas, considering the ties between the two economies, the foreign direct investment projects that are already in train in The Bahamas will likely not be as severely affected by the recession because they are in their development phases.
Citing projects like Kerzner Phase Four, the expansion at the Freeport Container Port, the Royal Oasis, Albany, Baha Mar and Ritz Carlton Rose Island projects, Mr. Laing explained that these projects will still contribute to the economic buoyancy of The Bahamas’ economy.
On Jan. 4, the US Labor Department said hiring practically stalled in December, driving the nation's unemployment rate to a two-year high of 5 percent. For all of 2007, wages increased 3.7 percent, less than the 4.3 percent gain in 2006.
Deloitte Chief Economist Steidtmann found it disconcerting that the so-called "aspirational luxury" customer is retrenching, though he said America’s super wealthy are still spending.
He said any retrenchment of the affluent has negative consequences not only for stores, but also for the boating industry and other luxury sectors.
Mr. Laing said the potential US recession would have effect on tourism arrivals and investments with their base in the US economy. He said the development stage of these projects does not depend on US economic robustness.
AP Business Writer Anne D’Innocenzio cited as evidence of a dramatic slowdown in U.S. consumer spending the fact that Sears Holdings Corp. warned that a drop in sales would result in a profit shortfall and the world’s largest retail trade group issued a downbeat sales forecast for 2008.
Sears Holdings, which owns Sears and Kmart stores, blamed growing competition, the housing market slump and consumers' credit fears for sales figures that were expected to slash fourth-quarter profit by as much as 57 percent from the year-ago period.
Meanwhile, the National Retail Federation predicted retail sales in 2008 will grow at the weakest pace in six years.
The reports come on the heels of sales reports last week by major retailers that showed the weakest holiday period since 2002.
Mr. Laing said that if a recession in the US is confirmed, and lasts for longer than two to three years, then there would be cause for grave concern.
He said, however, that he was "hardly one to share the view" that US economic policymakers would allow the recession – if it comes – to last that long.
However, he said, notwithstanding the economic realities of the US, The Bahamas’ economy will still be on a growth path on the order of 3.5 to 4 percent, a projection agreed to by the International Monetary Fund.
Mr. Laing pointed out that the IMF’s 4 percent growth forecast for the Bahamian economy took into account the US’ economic woes and downturns in the global economy.