Investment 2021 – economic recovery

The Jamaican economy grew 8.3 percent in the September quarter over the June quarter, with construction rising 7 percent over 2019 as signs of recovery from the highly depressed June quarter takes hold. This trend should continue as the tourism sector picks up the pace of recovery from a virtual lockdown between March and June.

The Hampshire Apartments complex built by Guardian Life.

With construction being the star performing sector for the September quarter, continued growth in this area is expected to continue into 2021 as new road construction, the building of houses and hotels continue. The country is short of factory and warehouse space; these areas could add to growth in 2021 and beyond.
As the hotel sector gradually picks up pace, the drag that the sector has on the rest of the economy should decline, as such other sectors serving the industry should also see improvements. Some of the sectors are transportation, manufacturing, agriculture, water, electricity and banking.
In all probability, the first quarter of this year is set to show a sharp fall in visitor arrivals compared to last that saw just over 574,000 stopover arrivals, with January and February at full capacity with 463,000 visitors but there were no visitors on April or May and just over 7,000 in June. The recent trend suggests that barring unforeseen developments, the 2021 June quarter numbers should show an encouraging out turn, indicating that the recovery continues apace. Visitor arrival numbers were the highest in November since the reopening, with just under 50,000 stopover visitors, down 76 percent from the 203,000 arrivals in 2019. That beats October with 45,000, which is ahead of July and August with over 41,000 stopovers. December final numbers are not yet in, but preliminary numbers put arrivals to December 28 at an encouraging 98,000 arrivals. The numbers should reach 110,000 by the end of the month or 39 percent of the 281,000 arrivals in December 2019. The trend since reopening in June is for a near gradual monthly percentage-wise improvement.
Rebound in tourism will increase the supply of foreign exchange to the market and hopefully, lend to greater stability of the rate even as the central bank rebuilds the Net International reserves.
The BPO sector seems set to grow, with employment stated to be moving from 40,000 to 50,000 during the year. Late last year, the president of the Global Services Association of Jamaica, Gloria Henry, told the Observer that the sector had rebounded to the point where it now employs some 39,000 people.
In reciting developments in the BPO industry, the Jamaica Observer newspaper reported recently the following: “According to Henry, in the Montego Bay Free Zone, where she operates, the information technology outsourcing portfolio has grown by 12.77 percent and the aim is to grow by 66 percent this year. Henry pointed out that the BPO industry leaders had started 2020 with a great deal of enthusiasm and were ready to implement projects in a number of areas to boost employment to 50,000.”
“We have navigated uncertainty very well and now with resilience, we are advancing towards the future,” said Henry as she indicated that five new BPO sites are scheduled to be launch in the first quarter of this year.”
Areas of the local economy that have social distancing restrictions will continue to be under pressure with reduced business activity. Areas such as live entertainment and, by extension, transportation will find it hard to recover fully in 2021.
Balance of trade data up to September, reported by the Statin, shows a sharp fall in the country’s import bill resulted in a billion-dollar reduction while exports declined by a much smaller amount, leading to a sharp improvement in the trade balance.
The government will be collecting more revenues as the economy gradually opens up and some areas of expenditure, such as support for the fall out of the Coronavirus, will be reduced.
Al in all, things are looking much better for a strong recovery in the overall economy for 2021, but it is unlikely to fully recover until 2022.
Under such subdued economic activity, interest rates should continue to remain low, but the unemployment rate that rose sharply in 2020 will gradually fall during the year.
Against the above development, the local stock market should deliver positive results in 2021 and real estate values should continue to increase.

Jamaica’s NIR continues to rise

Net International Reserves (NIR) US$69 to close out November at US$2,963 up from US$2,893 in October. Jamaica’s NIR had a big jump of US$146 million in October from US$2.75 billion at the end of September.
Gross reserves rose by $73 million to $3.93 billion that includes US$970 million due to the International Monetary Fund. The October increase was the first major rise in net reserves for 2020. In March, the NIR rose to US$3.24 billion from US$3.13 billion, slipped to US$2.9 billion in May and ended July at a low of US$2.76 billion. The NIR now represents 38 weeks of goods and service imports, the Central Bank states.

Jamaica’s NIR jumps US$146m

Jamaica’s Net International Reserves jumped US$146 million in October to reach US$2.89 billion. The net reserves balance is coming from US$2.75 billion at the end of September.
Gross reserves rose by $146 million to $3.86 billion, including US$966 million due to the International Monetary Fund. The October increase is the first major rise in net reserves for 2020. In March, the NIR rose to US$3.24 billion from US$3.13 billion. By May, it slipped to US$2.9 billion and ended July at US$2.76 billion.
The improvement in the NIR comes against the background of foreign exchange Canbio dealers buying US$424 million from the public and selling $373 million in October as Authorized Dealers bought US$628 million and sold $668 million. Cambios and Authorized Dealers must surrender around 10 percent of all foreign exchange funds purchased to the central bank.

Jamaica’s Inflation stays low

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Inflation in Jamaica for the first five months of 2020 remained extremely low, with the rate for May, coming in at 0.1 percent following April’s increase of just 0.2 percent, leading the year-to-date inflation rate at negative 0.4 percent.
Inflation over the past twelve months came out at 4.2 percent, with the period between July and November rising by exactly 4.2 percent, mostly due to a hike in the exchange rate of the Jamaican dollar versus the US dollar.
The May movement resulted mainly from a 1.1 percent increase in the heavily weighted Food and Non-Alcoholic Beverages division, according to a release from the Statistical Institute of Jamaica due to higher prices for agricultural produce, with a 2.3 percent rise. The division of Housing, Water, Electricity, Gas and Other Fuels increased 1.5 percent due mainly to electricity rates, which resulted in a 5.6 percent upward movement in the index for the group.
The index for the Education division fell 22.1 percent, primarily due to a decrease in tuition fees for the summer term and the Transport division index fell 0.3 percent, with lower prices for petrol contributed to this decline.

Jamaica’s inflation is tamed

Inflation in Jamaica is tamed. At least that is what data out of the Statistical Institute of Jamaica (STATIN) is suggesting, with negative inflation for the first four months of the year. 
According to the latest data on the Consumer Price Index (CPI), the inflation rate for April 2020 was 0.2 percent. The increase for April comes on the heels of low price increases from December last year, leading to a rise of 0.5 percent in the CPI index followed by January, with a negative price movement of 1.1 percent. February ended, with an increase of 0.7 percent, while March had a decline of 0.3 percent and with the April fall, the year to date movement came out at negative 0.5 percent.
The inflation rate for April is not directly comparable to the previous periods, but whatever difference there maybe is unlikely to be material. Statin updated the basket of goods and services used in the compilation of the index. Accordingly, the products and services included in the new CPI basket and the weights associated with each item have changed based on a 2017 Household Expenditure Survey. The difference between the old and new weighting is not substantial, with Food and Non-Alcoholic Beverages weighting of 37.4 percent previously, is now down to 35.8 percent. The group of Housing, Water, Electricity, Gas & Other Fuels is up to 17.8 percent from 12.8 percent previously. Transport is now at 11.2 percent versus 12.8 percent in the old basket. Recreation, Sports & Culture is at 5 percent compared to 3.4 percent in the previous measure. The only other change of note was the areas of Insurance & Financial Services that is now 1.1 percent. Previously it was grouped with Personal Care, Social Protection & Miscellaneous Goods & Services that amounted to 8.4 percent of the overall basket, with the new weighting for the new category, down to 5 percent.
According to STATIN, the reduction in the GCT rate, from 16.5 percent to 15 percent, impacted the inflation rate for April 2020. The ‘Food and Non-Alcoholic Beverages’ recorded an increase in its index of 0.3 percent. The inflation rate for the division ‘Housing, Water and Electricity’ was 0.2 percent due to a rise of 3.1 percent in the index for the group ‘Water Supply and Miscellaneous Services Relating to the Dwelling.’ The Transport division declined by 0.5 percent and was mainly attributable to the reduction in the costs of petrol.

Promising tourist season went south

Jamaica was enjoying a promising 2020 tourism season and then suddenly things went awfully, bad with the worldwide outbreak of the coronavirus that led to the closure of the country’s airports in March and disrupting visitor arrivals.
Stopover visitor arrivals rose strongly by 6 percent first two months of the year ahead of the similar period last year. January enjoyed a 4.9 percent bounce according to data put out by the JTB with February rising by 7.1 percent.
The critically, important USA market that accounts for about two thirds of visitors and much more in dollar intake, outperformed the overall industry bringing 9.7 percent more stopover visitors to the island in the two-month period. Arrivals from Canada were up just 1.6 percent. The UK market the third best market for Jamaica was down 2.1 percent, Europe fell 20.3 percent, but the Latin American market jumped stunning 58 percent to 10,566 persons. The Caribbean region saw 6.4 percent more arrivals coming in than in 2019. Asia fell a sharp 22.4 percent. Africa declined 13 percent and other countries 9.3 percent with just 747 arrivals. The U.S.A market accounted for 64.5 percent of stopover arrivals for the period, up from 62.4 percent in 2019. American tourists spend more on their vacations than the vast majority of visitors.
Cruise ship visitor arrivals continued the decline experienced since last year with a 15.2 percent fall having declined in both months of the year.
Figures for March, are not yet available, but will likely show a sharp fall with the closure of airports in March.

T-Bill plunged to lowest rates on record

In the latest Government of Jamaica Treasury bill (T-bill) auction, for April, rates hit their lowest level on record. The fall reversed the sharp uptick in rates at the March auction, with the average rate for the half-year instrument then hitting 2.01 percent and the three months 1.87 percent.
At the April auction, T-bill rates dropped to 1.08 percent for the 91 days Treasury bills, while the 182 days instrument ended with an average of just 1.05 percent. The rate for the 273 days instrument, averaged 1.73 percent.
In March, the demand dropped sharply to just $1.05 billion, for the half T-bills, the amounts applied for falling from $2.32 billion to $1.41 billion, in April, $2.46 billion chased after the $700 million on offer for the 90 days instrument, $2 billion went after the 181 days note and $1.5 billion chased down the 270 days bills. In each case, the GOJ offered $700 million to the public.

Crude price collapses

Energy traders bailed out of the expiring May U.S. oil futures contract in a frenzy on Monday, as the contract dropped by more than 70 percent to less than $5 a barrel and opening the widest gap ever between it and the next contract with storage rapidly filling, Reuters reported around midday Jamaica time.

Oil drilling offshore Guyana

The price of West Texas crude that plunged 45 percent to the lowest level in decades with the price hitting US$10.85 this morning plunged further in late morning trading to hit US$5.
On Thursday, the price dipped to close on the world market at US$19.73 from over US$62 in December last year. The fall takes place even as major oil producers agreed to cut production by nearly 10 million barrels a day, effective May.
The news is terrible for oil-producing countries and a huge gift to net importers of the commodity. In the Caribbean, Trinidad and Tobago and Guyana net exporters of the product will be negatively affected, but net importers in the rest of the Caribbean will enjoy a windfall should the low price persist. Jamaica will find the plunge a great gift as it will play a huge role in offsetting the fall in revenues from the tourist trade as at the current price the country would save around one billion per year.
For consumers, the drop means lower fuel prices, electricity charges but the government will see less advalorum taxes on petrol collected.

Crude oil plunged 45% Monday

The price of West Texas crude has plunged 45 percent to the lowest level in decades, with the price hitting US$10.85.

Imports of fuel fell in 2016

On Thursday, the price dipped to close on the world market at US$19.73 from over US$62 in December last year. The fall takes place even as major oil producers agreed to cut production by nearly 10 million barrels a day, effective May.
The news is terrible for oil-producing countries but a tremendous gift to net importers of the commodity. In the Caribbean, Trinidad and Tobago and Guyana net exporters of the product will be negatively affected, net importers in the rest of the Caribbean will enjoy a windfall should the low price persist. Jamaica will find the plunge a great gift as it will play a huge role in offsetting the fall in revenues from the tourist trade as at the current price, the country would save around one billion per year.
For consumers, the drop means lower fuel prices, electricity charges, but the government will see less advalorem taxes on petrol collected.

BOJ overnight rate still 0.50%

Bank of Jamaica announced the decision to maintain its accommodative monetary policy stance by holding the overnight policy rate offered to deposit-taking institutions at 0.50 percent per annum.
In announcing the decision to hold the rate Governor of the Bank of Jamaica, Richard Byles, stated, “I think it is important to emphasize that Jamaica’s financial system remains sound, well-capitalized and its current holdings of Jamaica Dollar liquid balances remain adequate. To ensure that orderly conditions are maintained, Bank of Jamaica has taken some pre-emptive measures to assure financial institutions and the public of adequate access to both Jamaica Dollar and foreign currency liquidity during this challenging period. There are a total of eight such measures, three in respect of foreign currency and five to do with Jamaica dollar liquidity.”
The central bank introduced a number of measures including the continued support of the foreign exchange needs of businesses in the real sector through direct sales to authorized dealers and Cambios, as needed. Increased limit on the foreign currency net open positions of authorized dealers by 5 percentage points.
The central bank states that it stands ready to expand the volume of foreign currency swap arrangements with authorized dealers. The stock of outstanding swap contracts now totals US$86 million.
The Bank commenced a bond-buying programme of GOJ securities on the secondary market from financial institutions and is prepared to effect early redemption BOJ securities. The Bank has so far purchased $26.3 billion GOJ instruments.
BOJ removed the limit on the amounts that deposit-taking institutions (DTIs) can borrow overnight without being charged a penal rate.

BOJ interest cuts overnight rate.

Effective today, we have re-introduced a longer-term lending facility, whereby Jamaica Dollar liquidity will be made available to DTIs for periods of up to six months. This enhances the ability of these institutions to secure their liquidity needs over a longer horizon.
We will re-activate an intermediation facility where BOJ will use its balance sheet to facilitate transactions between holders of liquid balances and others who require liquidity if needed. This facility should support a more even distribution of liquidity in the financial system in a context where institutions who could not access inter-bank loans because of the limits placed on them by lenders, can now do so indirectly with the central bank standing in the middle of the transaction.
As of 25 March 2020, the total value of liquidity assistance provided by the BOJ to the market via its short-term lending facilities and its asset purchase programme amounted to $57 billion.
“We believe that these measures will help to facilitate the smooth functioning of the credit market. Support inflation remaining within the inflation target of 4 percent to 6 percent over the ensuing eight quarters and will augment the fiscal measures already put in place by the Government,“ the BOJ governor stated.
The economic outlook, however, is characterized by significant uncertainty relating to the spread of the virus and the consequent depth and duration of the economic impact. In the near term, some upward price pressures can be expected due to supply chain disruptions and weather-related increases in agricultural prices. However, these will be offset by a sharp decline in oil prices and weaker consumer spending power, given the expected decline in economic activity. If the domestic and external responses to the pandemic have to be sustained for most of next fiscal year, the Jamaican economy will contract significantly. In this context, we expect inflation to be at the lower end of the 4.0 percent to 6.0 percent range over the fiscal year as well as the ensuing eight quarters.
The near-term outlook now, however, reflects significant challenges and heightened uncertainty due to COVID-19. Our monetary policy measures, along with the Government’s fiscal stimulus, are aimed at mitigating the impact of this pandemic on the economy and supporting a speedy recovery once the crisis has passed. BOJ states that it will continue to monitor the effects of COVID-19 on the economy closely. The central bank also indicates that it stands ready to deploy additional measures to ensure the continued smooth flow of liquidity to all participants in the Jamaican financial system and to maintain orderly conditions within the foreign exchange market. Actions the BOJ could take include a reduction of the policy rate and the cash reserves requirement,