PIOJ forecasts more growth despite shocks, rate hikes
The economy expanded at nearly twice the pace initially forecast by the Planning Institute of Jamaica, PIOJ, in the July to September quarter, assisted by tourism spending, but was hurt by reduced construction output, based on the agency’s estimates released on Wednesday.
Services grew 4.7 per cent, while the goods-producing industry expanded by 3.2 per cent, leading to overall growth of 4.3 per cent.
PIOJ Director General Dr Wayne Henry said the overall growth largely reflected higher levels of employment, and higher demand for goods and services. It also reflects increased business hours related to the removal of COVID-19 containment measures and curfews.
PIOJ said the hotels and restaurants industry grew 29.6 per cent during the September quarter, reflecting increased spending by tourists to US$693 million over two months, July and August, which was 49.5 per cent more than a year earlier. Additionally, for the month of October, travel arrivals were reportedly up by 52 per cent, signalling continued strong tourism numbers for 2022.
“We underscore that these are fluid projections but for now, we are projecting growth in tourism,” Henry said at his quarterly briefing on Jamaica’s economic performance.
The construction industry, which showed resilience during the pandemic, has recorded declines during the September quarter. The sector declined by 2.2 per cent due to a contraction in non-core ‘other construction’, which outweighed building construction. Also, sales dipped by 2.7 per cent during the review period.
The PIOJ highlighted the fall in spend by state-run National Works Agency, which disbursed $5.9 billion relative to $9.1 billion in the 2021 quarter. The bulk was related to spending on the Part B leg of the South Coast Highway Improvement Project slated for completion in March 2023.
The 4.3 per cent growth recorded in the quarter doubles the estimate projected by the PIOJ back in July, when its forecast was 2 to 3 per cent for the September quarter. Over three quarters, January to September, the planning institute estimated economic growth of 5.2 per cent relative to the 2021 period.
The final pronouncement on third-quarter GDP growth will be released by Statin in December.
PIOJ indicated on Wednesday that its forecasts for the rest of the fiscal year were likely to remain conservative, due to global uncertainties.
“The pace of the recovery will be influenced by the challenges within the global economy, stemming from the supply-chain shocks, its impact on inflation, and the contractionary measures being implemented by central banks to temper the rate of inflation,” he said.
PIOJ forecasts growth of 2.5 to 3.5 per cent for the October-December quarter, and 4 to 5 per cent for the full calendar year.
For the fiscal year ending March 2023, its forecast is for growth of 3.5 to 4.5 per cent.
In relation to the macroeconomy, Dr Henry said that Jamaica’s recovery continues within an environment of higher interest rates aimed at curbing high levels of inflation. During the medium term, the PIOJ expects inflation to “gradually recede”.
The annual inflation rate was estimated at 9.9 per cent in October, reflecting an uptick from 9.3 per cent in September. Bank of Jamaica raised interest rates again by 50 basis points to 7 per cent, effective Monday, days after Statin released the October inflation data.
The central bank expects that it will take another year for inflation to return to its target range of 4 to 6 per cent.
“The expectation is that inflation will gradually recede, easing the burden on Jamaican households. In this environment, it is important that monetary policy focuses on measures aimed at guiding inflation towards the target range, while fiscal policy focuses on strengthening public finances, supporting growth-inducing initiatives and reforms, while protecting the most vulnerable population from the inflation shock,” Henry said.