Apr 2011 Financial News

IMF maintains growth forecast for Jamaica

Apr 13, 2011

WASHINGTON, DC:

The International Monetary Fund (IMF) affirmed this week that Jamaica will emerge from recession this year with growth projected at 1.6 per cent, and that the real economy would continue to expand to hit a new high in another five years.

But Caribbean economies like Jamaica remain dependent on the health of the world system, dependent on both emerging markets and advanced economies for capital investment and trade.

Jamaica is expected to grow GDP by 2.4 per cent next year, and 3.8 per cent by 2016, according to the new IMF World Economic Outlook - levels last seen in 2003 when the economy expanded by 3.5 per cent.

In the decade ending 2002, Jamaica grew at an annual average of 0.6 per cent. The new IMF projections indicate average growth of 0.94 per cent in the decade ending 2012 - the latter includes three years of recession under which the economy contracted five per cent from 2008 to 2010.

The fund forecasts inflation at nine per cent this year - closely tracking with the Bank of Jamaica's outside projection of 9.5 per cent - and a one-third drop to 6 per cent next year. In five years, the fund assumes that inflation will remain at 5.5 per cent.

As a net debtor and net importer, Jamaica remains highly dependent on its external markets, which increasingly includes China and other emerging economies, to diversify and grow its export base.

overheating danger

On Monday, the IMF said at a briefing on the report that emerging markets are in danger of overheating.

"We are warning emerging markets that are getting to a point that is too good," said IMF chief economist Olivier Blanchard.

Inside the Caribbean, the IMF's outlook has improved in line with the global recovery, according to the World Economic Report. Caribbean economies will grow 4.2 per cent in 2011 and 4.5 per cent in 2012, but said about half of the expansion relates to two countries - a strong Dominican Republic and planned recovery spending in Haiti.

"There are risks to this forecast in both directions. In the near term, strong commodity export prices and capital flows present upside risks to growth. But these favourable conditions could also be triggers for demand and credit booms in a number of LAC economies. If unchecked, these could lead to an eventual bust," said the fund.

"Because of Brazil's systemic importance to the region, many neighboring countries are currently benefiting from its strong growth. Conversely, an abrupt slowdown of economic activity in Brazil would adversely affect the region. A related risk is that a potential hard landing in China would bring a sharp drop in the prices of the region's commodity exports, dampening growth prospects."

Brazil is expected to grow about seven per cent this year and China 9.6 per cent.

The fund cautions emerging markets against big spending, suggesting instead that they adopt 'rainy-day' policies in which windfalls from commodities are secreted away for periods when prices begin to fall or resources are depleted.

On Tuesday, the IMF released its 2011 Fiscal Monitor, which projects that the world will continue to run a fiscal deficit of 4.7 per cent of GDP, down from 5.6 per cent in 2010.

All major countries tracked by Fiscal Monitor will run a deficit this year, including China at 0.9 per cent of GDP.

Jamaica is not mentioned inside the Fiscal Monitor, but its deficit was last projected at 6.5 per cent.

The only grouping expected to run a fiscal surplus is 'oil producers', whose balance is projected at 1.3 per cent on average. Oil prices remain at around US$106/US$108 per barrel for light crude and about US$120 per barrel for Brent crude. Inside Jamaica, the increasing cost of oil has resulted in higher electricity bills, which last rose 10 per cent on average, and in gas prices at the pump. The latter has resulted in the Bruce Golding-led administration offering concessions on fuel taxes to bring down the price of gasolene, after the ex-refinery price breached the J$100 per litre mark.

confident

Blanchard said Monday that the IMF has no fears of a double-dip recession, notwithstanding the high price of oil and other commodities.

"We don't think the increases, this time, will derail the recovery," he said.

Headline inflation may tick "a bit higher", the economist acknowledged, but the effect on growth and core inflation will be small, he said.

The IMF's projection for world GDP growth is 4.5 per cent. Emerging economies lead the pack with a forecast of 6.5 per cent, while advanced countries, which themselves are increasingly dependent on emerging economies to buy their exports, the IMF said, are expected to expand by 2.5 per cent.


Source:
Lavern Clarke, Business Editor
lavern.clarke@gleanerjm.com
Jamaica Gleaner
Wednesday April 13, 2011

http://jamaica-gleaner.com/gleaner/20110413/business/business1.html