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Caribbean Islands

Macroeconomic Overview

Aggregate economic production has increased steadily since 1983, a year in which there was an actual decline in gross domestic product (GDP--see Glossary) of 2.9 percent. GDP rose by 2 percent in 1984, 3.7 percent in 1985, and 4.3 percent in 1986. Continued growth in GDP between 4 and 5 percent is expected through 1990, provided the economy does not experience any major setbacks.

Many sectors of the economy contributed to the growth of GDP. In 1985 government services accounted for 26.6 percent of GDP, the largest share of aggregate output. Next came agriculture (16.3 percent), the wholesale and retail trade (15.5 percent), construction (7.5 percent), hotels and restaurants (6.4 percent), and manufacturing (5.8 percent).

Much of Grenada's new-found economic prosperity was attributed to the completion of the international airport at Point Salines in St. George's. In addition to boosting the construction sector, it provided an airport to support the expanding tourist and export trades. Manufacturing and agriculture, however, were also important. Preliminary figures for 1986 suggested that manufacturing actually grew for the first time since 1982, and higher prices for agricultural products more than offset slight declines in production. The rise in government services also contributed to GDP figures, registering an increase of 11.2 percent in 1985.

Government figures, although incomplete, indicated that there was a concomitant rise in employment with increased production; nearly 4,000 new jobs were created in 1986. Unemployment, however, remained high, averaging between 20 and 25 percent in 1985, but it was moving in a downward direction after peaking in 1984 at 28 percent. Government plans to reduce the public payroll by 1,500- 1,800 personnel--announced in 1987 but not yet implemented in late 1987--would further exacerbate the unemployment problem. Agriculture was the largest employer, providing between 25 and 30 percent of all jobs.

The government was counting on the continuing structural adjustment (see Glossary) in employment to absorb newly displaced government workers, as well as many of the perpetually unemployed. Tourism and manufacturing were expected to take on larger portions of the work force. This adjustment actually began shortly after World War II as the number of workers employed by the agricultural sector began to decline. The manufacturing sector experienced uneven growth after World War II; however, in 1986 it showed signs of growth. Because of strong growth in tourism, the unemployment burden was partially alleviated in 1986. Although the structural change away from agriculture as the dominant employer was Grenada's best hope for development, it did not guarantee relief from chronic unemployment, which was the direct result of high birth rates and long-term overpopulation.

Inflation was the only macroeconomic indicator that improved throughout both the Bishop and the Blaize governments. The most dramatic downward movements in consumer prices occurred after 1984. Inflation as measured by the change in consumer prices remained the same for 1980-81, at 10.6 percent. The index fell in 1982, with prices rising only 6.9 percent; this dropped to 6.5 percent, 3.6 percent, and 1.8 percent for 1983, 1984, and 1985, respectively. The government of Grenada recorded an actual decline of 0.8 percent in the general price level for 1986.

Although the government took some credit for lower inflation rates, the decline in food and fuel prices in 1985 was largely responsible for the overall reduction in inflation. Although the government was in a position to select fiscal and monetary policies designed to minimize locally produced inflation, domestic prices were very dependent on world inflation and the international prices of Grenada's primary imports.

Data as of November 1987