Apr 2013 Financial News

IMF cuts growth forecast for Jamaica

Apr 17, 2013

THE International Monetary Fund (IMF) lowered its 2013 growth forecast for Jamaica, with the country now projected to grow by .5 per cent, down from the one per cent estimate in October 2012.

But the country's economy should strengthen in 2014, with real GDP growth of 1.2 per cent, according to the fund in its latest edition of the World Economic Outlook (WEO).

The lower expectation for Jamaica this year is in line with a weaker outlook for Latin America and the Caribbean as a whole, with regional growth projected to be 3.4 per cent, less than the 3.9 per cent anticipated in the October 2012 report.

Specifically, the IMF said growth in the Caribbean continues to be held back by high debt levels and weak competitiveness.

The stock of public debt in Jamaica stands at around 134 per cent of GDP. The country eagerly awaits an agreement with the IMF, with the management of the fund saying recently that it will add US$200 million to the Extended Fund Facility (EFF) for the country and plans to recommend the approval of the US$958-million arrangement to its board, which is expected to meet on the matter at the end of April.

The IMF expects Jamaica's inflation to hit 8.3 per cent this year, higher than the eight per cent it anticipated in October. However, the multilateral expects much less consumer price increases in 2014 of 6.2 per cent.

The fund added that Jamaica's current account deficit -- the amount of foreign exchange it spends above the amount it earns -- should run at around 10.3 per cent and 8.7 per cent in 2013 and 2014 respectively, compared to 11.9 per cent in 2012. It had previously in October projected a 2013 current account defecit of 11.1 per cent.

Global economic prospects have improved, but the road to recovery in the advanced economies will remain bumpy, the IMF said.

World output growth is forecast to reach 3.25 per cent in 2013 and four per cent in 2014.

"In advanced economies, activity is expected to gradually accelerate, starting in the second half of 2013. Private demand appears increasingly robust in the United States but still very sluggish in the euro area. In emerging market and developing economies, activity has already picked up steam," the report said.

Over the past six months, the IMF said policy actions have diminished risks of an acute crisis in both Europe and the United States, although the baseline outlook for these two regions diverges: in the euro area, balance sheet repair and stilltight credit conditions continue to weigh on growth prospects, whereas underlying conditions in the United States are more supportive of recovery, even with the sequester inducing a larger-than-expected fiscal consolidation.

According to the IMF, while recovery will continue in much of the Caribbean, with a gradual pickup in tourism flows, high debt levels and weak competitiveness will continue to constrain growth. To maintain high rates of potential output growth, the region needs to invest more in infrastructure and human capital, improve the business and regulatory environment, and diversify exports, the fund said.

The wider region fares better.

In Brazil, growth is projected to strengthen to three per cent, from less than one per cent in 2012, reflecting the lagged impact of domestic policy easing and measures targeted at boosting private investment. However, supply constraints could limit the pace of growth in the near term, the report stated.

Activity in other commodity-exporting countries is expected to remain strong, with the exception of Venezuela, where growth is projected to decelerate sharply as the pace of fiscal spending declines. Private consumption growth in Venezuela is also expected to decline in the near term following the recent currency devaluation and tightening of exchange controls.

In Mexico, growth is expected to be close to potential at 3.5 per cent in both 2013 and 2014, with domestic demand underpinned by sustained business and consumer confidence and resilient exports. High capacity utilisation suggests that the recovery in investment will continue, and sustained employment growth and favourable credit conditions should support consumption, the IMF said.

Most Central American economies are projected to expand in line with potential (by about 4.5 per cent), supported by strengthening in exports and remittances, although fiscal consolidation may dampen demand in some cases.


Source:
Jamaica Observer
Wednesday April 17, 2013

http://www.jamaicaobserver.com/business/IMF-cuts-growth-forecast-for-Jamaica_14084355#ixzz2QqBloNvz