Strategic
Outlook
According to the Statistical Institute of Jamaica (STATIN), the Jamaican economy grew by approximately 2.6% in 2023, while growth for 2024 is projected at 1.8% by the IMF. This projection represents continued growth materially above Jamaica’s long-run trend growth, which averaged 0.6% during the 2010-19 period. However, the pace of growth has moderated from the post-pandemic surge. The latest data highlights that agriculture, forestry and fisheries, as well as the hotels and restaurants industries, are the primary drivers of the economic recovery anticipated in 2024. Growth in the agriculture, forestry, and fisheries industry was spurred by favourable weather conditions, while the hotels and restaurants industry continue to benefit from increased stopover arrivals. It is worth noting that preliminary data from the Planning Institute of Jamaica indicates a 0.4% decline in stopover arrivals for the second quarter of 2024, which may exert downward pressure on overall growth relative to previous quarters. Additionally, a contraction in the construction sector, driven by a decline in building construction and installation, partially offset the year-to-date growth.
The government’s fiscal account appears to be robust, consistent with the broader recovery in the economy, positioning Jamaica towards achieving a reduction in the debt-to-GDP ratio to 60% by March 2028. The debt-to-GDP ratio is estimated at 73% at the end of the 2023/24 fiscal year, down from 109.7% in 2021 arising from increased social spending to curtail the negative impacts of the pandemic. On the external balance front, Jamaica is estimated to have recorded a surplus in the current account of approximately 2.4% of GDP, driven by a lower fuel import bill and an improvement in tourism inflows. This contributed to an improvement in the stock of net international reserves (NIR), which remained at adequate levels (over US$5.0 billion, thereby representing 25 weeks of goods and services imports).
In terms of the monetary policy environment, inflation in Jamaica has been on a downward trend since April 2022 as key commodity prices and shipping costs saw some reversion following a meteoric rise in 2021. The latest report from STATIN as at July 2024 indicates that inflation is within the BOJ’s target band, with a point-to-point rate of 5.1%. Although inflation is expected to tick up in the next three to five months reflecting the impact of Hurricane Beryl on agricultural and other consumer prices, average inflation is expected to remain within the target band due to easing demand pressure, lower commodity prices and the lagged impact of the BoJ’s tight monetary policy, with continued moderation expected for commodity prices. Given this context, the Bank of Jamaica continues to signal its commitment to the inflation-targeting regime through successive increases in the policy rate throughout 2022 up to November, culminating in a pause at 7.0%. However, with inflation more anchored in the BoJ’s target range, the Monetary Policy Committee (MPC) elected to cut the policy rate by 25 basis points in August 2024 to 6.75%, following the decision to reduce their absorption of liquidity in June 2024.
Despite an evolving monetary policy backdrop, with the US expected to begin cutting the policy rate in September 2024, along with other advanced economies that have already begun to cut rates, local institutional and high-net-worth investors seem to still be in risk-off mode even as local economic activity remains stable, amidst concerns of declining growth ahead, both locally and in key advanced economies. Consequently, the local combined index for the Jamaica Stock Exchange remains below pre-pandemic levels. In the second quarter of 2024, both the Main and Junior Markets were down, with the Main Market underperforming.
We anticipate that growth in the domestic economy will moderate and converge towards potential, supported by a relatively robust labour market and inflation anchored within the target range. However, this view is tempered by the growing expectations and early signs of a global economic slowdown and its impact on tourism and remittances that could impair the pace of Jamaica’s expected economic growth. Therefore, we are cautiously optimistic over the short to medium term, but quite upbeat on the long-run economic prospects for the local economy.