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This paper evaluates the economic prospects of Bahamas and Barbados as small tourism oriented economies whose growth has slowed because of intensified competition from other Caribbean tourism destinations. It demonstrates the response to these factors such as product differentiation and quality enhancement. Evaluation is done using a forecast methodology that allows judgmental input to reflect these elements. The model used is of differentiated export sector (goods and services) driving a non-tradable sector with constraints on fiscal and monetary policy imposed by balance of payments, a fixed nominal exchange rate and policies to maintain a competitive real effective exchange rate. The economic strategy seems to lead to a recovery in the Bahamas but the prospects for Barbados are uncertain.