The Tribune

By KHRISNA RUSSELL

Tribune Chief Reporter

krussell@tribunemedia.net

BAHAMIANS have at best until the end of the year to financially prepare should the local economy fall into a recession in the coming months, a financial expert has warned.

Gowon Bowe, Fidelity Bank Bahamas’ CEO, pointed to indicators that the United States’ economy by some accounts is in the beginning phases of a recession that could affect pockets and businesses here in The Bahamas.

Mr Bowe told The Tribune yesterday that all eyes should be paying keen attention to the US, taking into consideration that what happens there will first be felt in the country’s tourism market.

While he acknowledged that local officials have celebrated pent-up demand to travel fed by the massive slowdown of movement due to the COVID-19 pandemic, Mr Bowe pointed to much of the impact being on Americans’ spontaneous spending.

He told this newspaper that Bahamians must “brace ourselves for what may be a slowdown in tourism”, and while the numbers are still good, focus on our “value proposition” with a realisation that “sour faces, lack of attention and failure to adhere to our hospitality principle will only exacerbate the problem”.

The Fidelity Bank executive was contacted yesterday and asked whether the local economy should brace for fallout from a downturn in the US market. By some accounts a recession has been forecast for the US, while others say the country is already in a recession.

Last month, PBS reported that the US Federal Reserve’s chairman Jerome Powell acknowledged the Fed’s goal of engineering a “soft landing” — in which it would manage to slow growth enough to curb inflation but not so much as to cause a recession — looked increasingly unlikely.

“No one knows whether this process will lead to a recession or, if so, how significant that recession would be,” Mr Powell said at the time, according to PBS.

Yesterday, Mr Bowe said two components have to be considered when forecasting a recession in the US.

“The first one is where is it that we derive the majority of our GDP and by that, I mean what is our principal production centre and that is tourism. So, that means that tourism is based on a luxury item, which is a service being sold by if you have your primary customers or primary market for customers actually finding that their available cash flow is being reduced, what are the first things you have to cut back on when you don’t have the same level of cash flows?

“So, paying your bills, your rent, your utilities, your mortgages, your personal loan bills and the like and so when you start talking about eating out, airfare and hotel costs, those are things that will be sacrificed.

“For The Bahamas when we see our primary market being the United States it means that there is a real risk that when they enter into a sustained period of recession and I think we don’t need to split hairs as people have less money to spend there’s a recession. So, whether they define it as a recession now or in three months’ time the reality is as Americans have less discretionary cash flows, that is going to impact their willingness to travel because it is considered luxury.”

He continued: “The hotels domestically have indicated that because of the pent-up demand there has been a lot of forward bookings. They have indicated for the holiday season and certainly the winter season and there is a potential that persons have prepaid for vacations, which means that when they had the cash flows they prepaid so they could lock in affordable prices.

“That will come to our benefit, but where it is spontaneous spend when they pick up and just wish to travel that is going to be severely impacted.

“So, Bahamians, we have to brace ourselves for what may be a slowdown in tourism,” Mr Bowe said.

This could translate, in the worst-case scenario, to a reduction in employment or a reduction in consumption, he said.

“We need to be preparing ourselves by putting aside as much as we can even if it is very minimal so we can ride through a period where we may experience reduced employment, reduced consumption — that can lead to further employment reductions in other industries and potentially greater cost due to reduced foreign currency,” he explained.

Asked how long Bahamians had to prepare, he said: “If we go by what the hotels have indicated that their Christmas season seems to have all been full, I would say we really have no more than between now and the end of the year.

“The reality is the US, if you have listened to it, they have already demonstrated consecutive quarters of negative growth so by definition if you use the traditional definition it is already in recession.”

However, he said, any fall out in The Bahamas will be predicated by how long the same lasts in the US.

“The United States is hoping that when they go into a recession because the interest rates are so high that they will be able to reverse the recession in rapid succession.

“Meaning they have pushed the interest rates so high if they drop them it will jump start the economy quickly.

“They are gambling and I use that term purposefully, they are gambling on can we use monetary policy to stop the freight train and then restart it quickly in order for us not to crash into the cross lines in terms of two trains crossing over,” Mr Bowe said.

“So we are banking on the Federal Reserve being very, very smart and being able to pull of what they call forcing it into recession and then bringing it out to normal spending so that they will be able to bring inflation under control and then at the same time spending back to normal but it’s a big, big gamble,” Mr Bowe said.