Outlook for Barbados' Economy (Updated July 2026)

The Bank expects the economy to grow by approximately 2 percent in 2026, at the lower end of the 2 to 3 percent range published at the end of the first quarter. Growth of 1.4 percent in the first half came in below the pace that range assumed. Tourism, construction, and transportation each fell short of projection, and together they account for the difference. 

External conditions weighed on activity during the first half, with the effects concentrated in the second quarter. The war raised freight and energy costs, disrupted shipping routes, and lifted the cost of capital. Sharply higher airfares and reduced seat capacity weighed on the United States market in particular, and long stay arrivals held broadly level rather than expanding as projected.

Reaching approximately 2 percent for the year requires second half output to expand by approximately 2.5 percent relative to the second half of 2025. The forward indicators support an acceleration of that order. Forward bookings for the July to December period stand approximately 3.7 percent ahead of the same period of 2025, with the United Kingdom pacing 10 percent ahead and Caribbean and European markets also higher, while the United States market remains slightly behind. Planned seat capacity for July to December stands 3 percent above the corresponding period of 2025, with increases of 13 percent from Canada, 9 percent from the United Kingdom and Ire land, and 5 percent from both Europe and the Caribbean, partly offset by an 8 percent decline from the United States. 

Ongoing work at the Pierhead Development, Coverley Residences, Atlantic Breeze, and Vistara Residences, together with the planned start of several new projects such as One Carlisle and the Afreximbank Trade Centre, should strengthen construction activity during the second half. The resulting increase in investment should support business and other services, wholesale and retail trade, transportation, and employment. Improved rainfall and the Ministry of Agriculture, Food and Nutritional Security’s crop escalation programme should also support selected food crops, although weather conditions, planting decisions, and the availability of quality planting material remain risks. 

External pressures nevertheless temper the pace of that recovery. Freight, energy, and capital costs remain elevated, and further softening in the United States market or slower delivery of planned investment would hold the acceleration below the level this projection assumes. 

The global outlook remains subject to elevated uncertainty amid persistent geopolitical tensions and trade policy shifts. The IMF’s July 2026 World Economic Outlook projects global growth of 3 percent in 2026 before recovering to 3.4 percent in 2027. For Barbados, external developments influence economic activity through tourism demand, commodity prices, freight costs, and supply chain reliability. A further escalation in geopolitical tensions or trade restrictions could weaken external demand for tourism, raise imported costs, disrupt supply chains, dampen business confidence and investment, and increase uncertainty around external financing. 

Domestic inflation should rise modestly as global input costs strengthen, although targeted Government measures should contain the pass through. The Bank projects the 12-month moving average inflation rate within a range of 2 to 3 percent in the near term. Higher food, energy, and freight costs create the upward pressure. Targeted Government measures should limit the domestic effect, particularly on energy prices. Further geopolitical escalation presents the main upside risk to this projection. 

Tourism earnings and other external inflows should keep international reserves strong and adequate. The first-half increase in current transfers reflected corporate tax receipts, including flows associated with the global minimum tax regime, which may not recur at the same pace. Higher fuel imports, weaker tourism demand, delays to investment inflows, and geopolitical disruption present the principal risks to the external position. 

BERT 2026 and the precautionary Stand-By Arrangement provide a framework for maintaining fiscal discipline, protecting external buffers, and advancing reforms that support investment and productivity. The arrangement offers insurance against external shocks without drawing on Fund resources, while the programme anchors the primary balance path required to continue reducing public debt. Continued progress on tax administration and public sector governance reforms should support that path. 

Continued economic growth should support lending and asset quality, while strong capital and liquidity protect the system against shocks. Improvements in borrower repayment performance should preserve loan quality, and capital and liquidity positions provide the capacity to absorb shocks. The recent rollout of BiMPay should improve payment efficiency, broaden access to electronic payments, and support financial inclusion over time.

Strong buffers give Barbados the capacity to withstand shocks, but the full year growth outcome will depend on faster investment execution, stronger productivity, and improved traded performance. sector Prudent fiscal management and the timely delivery of public and private investment will determine how much of the projected acceleration materialises.