Jamaica growth to wane but still outpace region in 2023
Technocrats expect the Jamaican economy to grow 3.0 per cent in 2023, or nearly double the pace of the region, as it benefits from recovery and sectors coming back online.
The growth, however, ebbs slightly from initial projections of 3.3 per cent in April by the World Economic Outlook, a flagship publication of the International Monetary Fund. But it still outpaces the growth of the wider Latin America and Caribbean, which is set to grow by 1.7 per cent in 2023, down from initial projections of 2.5 per cent.
“However, growth in the region is expected to slow in late 2022 and 2023 as partner country growth weakens, financial conditions tighten, and commodity prices soften,” the IMF said.
The growth was downgraded due to global uncertainties which are affecting some in the region more than others. The concerns include high interest rates and curbing global inflation.
That said, the real sectors within the Jamaican economy continue to grow, with heavy foreign exchange earners such as tourism and alumina back on the rise.
“Generally, the prospects for the Jamaican economy in the short to medium term are positive, given the impact of the removal of the previously implemented COVID-19 containment measures,” the Planning Institute of Jamaica, PIOJ, said in its latest pronouncement on the economy.
“This will continue to support the expansion of economic activities in most industries. Increased employment levels will also result in greater domestic demand in the short to medium term,” the state agency said.
The PIOJ cited the resumption of production at the Jamalco Alumina refinery and the gradual ramping up of full capacity from the fire that halted production last year.
As signs of the recovery, for the month of October, alumina production is up by 133 per cent. The hotels and restaurants industry continued to record robust growth, with data on airport arrivals for October indicating an increase of 52 per cent relative to October 2021.
Annual inflation was estimated at 10.3 per cent in November, tracking within the range forecast by the central bank for the period, but still outside the target range of 4 per cent to 6 per cent it is tasked to defend.
Jamaica’s benchmark interest rate, however, is still lower than the inflation rate, which remains at odds with most of the region, according to the regional UN economic commission called ECLAC.
“Also of note, given the 12-month inflation expectations reported by the region’s central banks, monetary policy rates are positive in real terms in most of the countries, with the exception of the Dominican Republic, Guatemala and Jamaica,” ECLAC said.
Since October 1, 2021, when the Bank of Jamaica started hiking interest rates to defend the inflation target, it has increased the benchmark rate fourteenfold, from 0.5 per cent to 7.0 per cent, as a means of keeping inflation in check. Jamaica was not alone, as 11 of the 12 countries in the region, with the exception of Honduras, have raised rates since 2021, according ECLAC, which has been tracking countries that used interest rate hikes as their “main monetary policy tool” up to July.
Going forward, the BOJ expects local rates to be influenced by the knock-on effect of further US Federal Reserve rate hikes in 2023.
“In this context, yields on Jamaica’s sovereign bonds are projected to rise at least through mid-2023, which could support an upward movement in domestic interest rates,” the central bank stated in its Quarterly Monetary Policy Report dated November.