EMERGING markets, including those in the Caribbean, must find new models of economic growth and the first step is to move away from models based on high government spending or driven by debt, says Natalie Mansoor, head of Asset Management at RBC Investment Management (Barbados) Ltd.Speaking at the recent Annual Forecast Dinner hosted recently by the Chartered Financial Analyst (CFA) Society, Barbados, Mansoor noted that many Caribbean economies have traditionally linked their growth cycles to the external environment, together with reliance on one or two products or services.
“It is a simple model,” she said. “In good times spend. In bad times borrow and continue to spend and wait for good times to come back.”
But Mansoor said the problem with this approach was that without stronger growth cycles the debt simply continues to grow. As a result, she said she expected to see downgrades, debt restructuring and defaults. She added: “I expect devaluations. They are inevitable, whether we choose them or have them forced on us.”
She told CFA members and guests that slow growth in wages had become a drag on consumption in developed markets, and growth in the global economy would have to come from emerging markets with growing populations and rising incomes. In the United States, for example, she said, growth in wages was not keeping abreast of job creation.
“In the US we have unemployment of 5%, but we still see low-wage growth. Normally, we should be getting more wage growth,” Mansoor said.
The investment banker said two major factors were now keeping the lid on wage growth in developed markets. First, most of the jobs being created are low-skilled and low-paying. Secondly, the declining cost of automation is displacing middle-skilled jobs.
In their presentations, both David Noel, Scotiabank’s managing director, Caribbean East, and Donna Wellington, CIBC FirstCaribbean’s managing director – Barbados Operating Company, also warned that high indebtedness and large fiscal deficits continue to undermine hope of meaningful growth.
Made up of approximately 50 local investment professionals, the CFA Society Barbados is a member of the Chartered Financial Analyst Institute, a global not-for-profit organisation, comprising over 135,000 investment professionals worldwide.