5 months ago
36
Bank of Jamaica Governor Richard Byles views the current dip in economic output as transitory, amid signs of two consecutive quarters of decline.
The Jamaican economy contracted by 3.5 per cent in the third quarter of 2024 and Planning Institute of Jamaica’s readings indicate that there was a second contraction in the December quarter. A double dip would put Jamaica in a technical recession.
“We have no quarrel with the current internationally accepted criteria, which is fundamentally rooted in GDP decline in consecutive quarters. That is an internationally accepted definition. All we are saying is, recall we are coming from very strong weather-related incidents that would have had a negative effect,” said Byles at a press conference on Monday.
Last week, PIOJ reported that the economy contracted by 1.8 per cent in the October-December period, by its estimate. The final outturn will be determined by Statin, which will release its data on March 31.
The PIOJ attributed the decline to the external shock of Hurricane Beryl and other weather-related events, rather than any inherent weakness in the economy.
Byles explained that the economic metrics are at odds with the double-dip, leading the BOJ to avoid announcing any policy push to spur economic activity using the levers of monetary policy.
The central bank said that the current indicators of low unemployment and higher business and consumer confidence run contrary to the concept of a recession.
“If we are in a technical recession, we will come out of it fairly quickly,” said Byles.
The PIOJ has projected that the economy will grow within a range of zero to 1.0 per cent in the March 2025 quarter, while the BOJ projects Jamaica will recover fully from the effects of the weather-related events over ensuing quarters.
“Real GDP for fiscal year ending 2026 is therefore projected to grow by between 1.0 and 3.0 per cent,” said the central bank governor.
Last week, Fitch, an international rating agency, maintained its rating and positive outlook for Jamaica. It expects the economy to grow at the upper end of the growth forecast to 2.5 per cent. Fitch added that such growth was still “particularly weak relative to its rating peers”.
The International Monetary Fund, World Bank, and the US-based National Bureau of Economic Research, NBER, each have nuanced views of a recession that go beyond the technical definition of two consecutive quarters of GDP decline.
The IMF typically considers a recession to be a period of decline in economic activity across various indicators such as real GDP, real income, employment, industrial production, and wholesale-retail sales. The World Bank looks at a broader set of factors, including global economic growth, synchronised recessions in major economies, and per capita GDP contraction. NBER, governed by 51 members from leading North American research universities, economics professional organisations, as well as business and labour, uses a range of economic indicators to determine a recession, including GDP, employment, income, and industrial production.
In Jamaica, Byles indicated that local inflation should remain well anchored within the BOJ target range of 4.0 to 6.0 per cent over the next two years. However, he added that factors negatively affecting the inflation forecast “now appear skewed to the upside”.
“The uncertainty that I mentioned earlier related to potential economic policy changes among Jamaica’s main trading partners, which could have adverse implications for remittance and tourism inflows into the economy, as well as repercussions for inflation expectations. Worse-than-anticipated weather conditions in Jamaica could also continue to put upward pressure on inflation. On the downside, lower inflation could result from weaker-than-projected demand,” he said.
Last week, the BOJ Monetary Policy Committee unanimously decided to maintain the policy interest rate at 6.0 per cent per annum and to preserve stability in the foreign exchange market. This decision was supported by the recent inflation data, which fell to 4.7 per cent in January. The year prior, inflation was 7.4 per cent.
English (US) ·