May 2013 Financial News

Economy contracts in March quarter

May 17, 2013

The Jamaican economy is estimated to have contracted by up to 1.2 per cent during the January to March quarter, the Bank of Jamaica (BOJ) has reported.
It was the fourth consecutive quarter of negative growth and has resulted in a decline in gross domestic product (GDP) growth for fiscal year 2012-2013 of between zero and one per cent.

At the same time, the central bank is projecting a fifth consecutive period of contraction, the April to June quarter estimated to decline by up to 0.5 per cent.

This means that, taken to its limits, Jamaica has long been in a recession, given the technical indicator of two consecutive quarters of negative economic growth as measured by a country's GDP.

The contraction in the March quarter and fiscal year was largely a result of drought which affected the island, as well as weak domestic and external demand, the BOJ said.

But authorities at the bank are upbeat that there will be gradual improvement during the fiscal year as investor confidence continues to build as a result of the approval of Jamaica's programme with the International Monetary Fund (IMF).

"The approval of the extended fund facility for Jamaica is providing a boost to confidence in the domestic economy," BOJ Governor Brian Wynter said.

"Continued improvement in confidence is anticipated with the strengthening in foreign-currency flows to the economy," he added.

"Already, there have been more orderly adjustments in the exchange rate as economic agents are reassured of the Government's commitment to achieve sustainable debt and fiscal ratios," Wynter said, while presenting the quarterly monetary report at the bank's Nethersole Place office, downtown Kingston, on Wednesday.

"In addition, interest rates in the economy continue to be at historically low levels and are expected to remain relatively low under the influence of the successful NDX (National Debt Exchange) and strong fiscal consolidation currently under way," the governor said.

"These developments are expected to lead to a gradual recovery in domestic economic activity and per capita income over the near to medium term," he added.

The IMF approved a four-year extended fund facility in the sum of US$958 million for Jamaica on May 1, and two days later the country received the first tranche of US$202.6 million.

That support, according to Wynter, will make more resources available to the private sector to facilitate investment and growth for the country.

Economic growth for fiscal year 2013-2014 is projected in the range of between 0.5 per cent and 1.5 per cent, which is expected to be bolstered by the robust growth of 18.4 per cent in private-sector credit.

The central bank said the estimated decline during the March quarter showed contractions in sectors such as agriculture, forestry and fishing, mining and quarrying, hotels and restaurants, as well as electricity and water supply.

The inflation outturn of 2.7 per cent for the review quarter was also impacted by drought and weak domestic and external demand, but remained within the range of two per cent and three per cent as was forecasted.

Headline inflation for fiscal year 2012-2013 was 9.1 per cent, within the targeted range of 7.5 per cent to 9.5 per cent.

The inflation forecast for the June quarter is within the range of two and three per cent, while the projection for fiscal year 2013-2014 is within the range of 8.5 per cent and 10.5 per cent.

"Inflation is expected to largely reflect the impact of drought conditions on the prices of agricultural commodities and lagged pass-through of recent exchange rate depreciation," the central bank governor reported.

Wynter noted that uncertainties have now waned in the foreign exchange market with an apprecia-tion in the local currency since mid-April.

He reiterated what was outlined at the start of May that "the bank remains committed to providing an orderly market for foreign exchange and will take the necessary actions to maintain order".

He added that "orderly movements in the exchange rate which enhance price competitiveness will help to create an environment which facilitates strong and sustained growth in exports and import substitution, which is a key objective in the Government's medium-term macroeconomic programme."

During the quarter the weighted average selling rate of the United States dollar versus the Jamaican dollar depreciated by six per cent.


Source:
sabrina.gordon@gleanerjm.com
Jamaica Gleaner
Friday May 17, 2013

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