Grenada has been hit hard by the global economic slowdown with the two mainstays of the economy – tourism and foreign direct investment (FDI) – weakening significantly. Real gross domestic product is estimated to have declined by 7.7 percent in 2009, after 2.2 percent growth in 2008. Tourism dropped by about 13 percent year-on-year and FDI-related construction is estimated to have contracted by about 50 percent for the year, although the pace of decline slowed in the last quarter of 2009, reflecting an uptick in FDI inflows. Prices fell by 2.4 percent in the 12 months to December 2009, reflecting weak domestic demand and lower international food and fuel prices.
The current debt-to-gdp ratio here is 120%. On Feb.1, they put in a fifteen percent VAT. I am curious to see how long it takes them to spend that money and move back to major deficit mode. Is there a systematic empirical study of this question?
Overall, it's hard to see where future economic growth will come from. Grenada doesn't have enough night life to appeal to younger, non-yacht-owning American tourists, and wealthy British tourists and expats wonder why they should come so far, especially with such cheap European airfares and the use of English spreading globally. The island doesn't seem to have much in the way of factories or light manufacturing. Nutmeg is fine but doesn't hold a huge future and in the meantime the trees still have to recover from the hurricane. One option would be to encourage more Indian and Chinese immigration. Yet it seems to me the place is just well off enough that they don't feel compelled to make big changes and they will experience slow deterioration of their relative standing.