Economic survey of Latin America, 1980: Grenada: preliminary version = Estudio económico de América Latina, 1980: Granada: versión preliminar

GRENADA Recent economic trends: Introduction and summaryFollowing a decade of sustained recovery from the massive destruction wreaked on the island by a hurricane in 1956, economic activity plunged at a precipitous rate in the early 1970s, owing to the combination of a recurrence of adverse weather conditions, the unfavourable evolution of the external sector, and an abrupt change in the pattern of land tenure, which was accompanied by a marked fall in output.In 1974, those factors were exacerbated by political disorders associated with the transition to Independence, which led to the closure of the port facilities for three months; the international recession, and the bankruptcy of the only airline serving the island's tourist industry, which provoked a severe crisis in this sector.However, in 1975 and 1976, when the negative contingent factors eased appreciably, the economy rebounded sharply, and recovery also proceeded at a rapid pace in 1977 and 1978, owing mainly to a continued marked improvement in export prices and a sustained recovery in agricultural output.Following an estimated average rate of expansion of 5.5% per year in 1977-1978, however, the rate of growth fell to approximately 3% in 1979.For 1980, partial and preliminary statistics indicate that the real GDP suffered a drastic contraction, for it is estimated to have increased by only about 10% in current terms, while prices rose almost 21% on an annual average basis.All of the principal sectors registered declines.Agriculture was plagued, once again, by highly unfavourable climatic conditions, as the island was struck by Hurricane Allen in August, and was subject to flooding throughout much of the second half of the year.Manufacturing output dropped proportionately to the severe reduction in raw material inputs from agriculture, while tourism was adversely affected by the international recession.In this context, it may be assumed that the current account deteriorated substantially, although complete data are not available.In any event, the current value of merchandise exports declined by more than one-fifth, and this reduction, together with the 15% rise in merchandise imports, resulted in a 50% leap in the deficit on visible trade.However, partial data suggest that the deficit was largely offset by grants and concessionary loans from abroad.During the course of the year the rate of inflation accelerated appreciably from about 12% in the previous year to almost 21%, as a consequence mainly of imported inflation and the depreciation of the East Caribbean dollar with respect to the British pound, but also as a result of the drastic drop in the output of food crops.Following an average rise in money wages of the order of 20% in 1979, which implied a substantial increase in real wages, wage agreements negotiated in 1980 registered a hike in money wages which averaged 16%: an increase substantially below the rate of price inflation, but appreciably above the nominal rate of growth of the economy.After a huge increase in public spending in 1979, total government expenditure fell about 1 % in nominal terms and declined markedly in real terms in 1980.This, together with a moderate increase in current government income, resulted in a substantial reduction in comparison with the enormous fiscal deficit registered in 1979, when it was equivalent to 27% of GDP.Even so, however, the 1980 deficit was still well over four times greater than the one recorded in 1978.Nevertheless, as occurred also in 1979, the supply of external finance in 1980 exceeded the deficit on total government spending, with the result that the internal public debt was reduced for the

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