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| Barbados currency |
Barbados economy in 2026 is projected to experience a small downturn in growth. Numbers were projected to be 1.9%, now it has been revised down to 1.7%. This is a significant fall in projected growth when compared to the 2.7% experienced in 2025.
This latest forecast reflects slowed economic activity in the first half of 2026 and is exacerbated by the prolonged US-Iran conflict: the country's average inflation is forecasted to rise to 2.1% in 2026 up from 0.9% in 2025, as continued instability in the Middle East cause disruptions to global shipping and sustains pressure on international oil prices, driving up imported inflation.The government have been implementing measures to cushion the impact on households which are expected to prevent a sharper rise in inflation in the short term. Meanwhile, the budget deficit is expected to widen from an estimated 0.2% of GDP in the financial year 2025/26 to 1.2% in the financial year 2026/27, as the government increases spending to support growth, upgrade infrastructure and provide targeted assistance to households and businesses.
Despite the expected wider deficit, fiscal policy is expected to remain prudent and anchored by a healthy primary surplus, supporting a gradual decline in gross public debt from around 95.5% of GDP at end financial year 2025/26 towards the government’s long-term target of 60%. As a result, the Central Bank is expected to maintain the exchange rate peg at BBD2.00/USD, which remains well supported by international reserves despite a widening external deficit stemming from the oil price shock.
Risks to the outlook remain tilted to the downside, particularly if a new US/Iran agreement to reopen the Strait of Hormuz is not reached before Q4 or the conflict escalates further. A more severe and prolonged oil price shock may push inflation higher and weaken growth beyond current forecasts.
Also, a potentially severe El Niño event could also strain water supplies, weigh on agriculture and add to local food-price pressures, while broader climate risks remain a concern for the tourism sector. On a brighter note, faster implementation of economic reforms could accelerate inward investment and provide upside to growth.
Risks to the outlook remain tilted to the downside, particularly if a new US/Iran agreement to reopen the Strait of Hormuz is not reached before Q4 or the conflict escalates further. A more severe and prolonged oil price shock may push inflation higher and weaken growth beyond current forecasts.
Also, a potentially severe El Niño event could also strain water supplies, weigh on agriculture and add to local food-price pressures, while broader climate risks remain a concern for the tourism sector. On a brighter note, faster implementation of economic reforms could accelerate inward investment and provide upside to growth.
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