Since independence, Barbados has transformed itself from a low-income economy dependent upon sugar production to a middle-income economy based on tourism. The economy went into a deep recession in 1990 after 3 years of steady decline brought on by fundamental macroeconomic imbalances. After a painful readjustment process, the economy began to grow again in 1993. Growth rates averaged between 3%-5% since then until 2001, when the economy contracted 2.8%. As 2004 nears, there are signs of a gradual economic recovery.

The main factors responsible for the decline in economic activity include a decrease in the number of tourist arrivals following September 11 events, the general global economic downturn, and the impact of a depreciated Euro on sugar exports. Offshore banking and financial services have become an increasingly important source of foreign exchange and economic growth.

By year-end 2001, the recession led to a rise in unemployment, led by net decreases in employment in the tourism sector, as well as in construction and manufacturing sectors. The public service remains Barbados' largest-single employer. The employed labor force totaled 128,600 persons at the end of 2001, and the unemployed labor force expanded from 13,000 in 2000 to 14,000 in 2001. At the end of 2001, 62,900 persons were economically inactive. Unemployment rose in 2002 to 10.3%, but is still significantly lower than the 20% levels of the early 1990s.