BOJ: Economy likely declined in Q2

August 21, 2013 by

Economic activity for the June 2013 quarter is estimated to have declined within the range of negative 0.8 percent to positive growth of 0.2 percent the central bank said in its latest report on the economy. This performance compares to average decline of 0.7 per cent for the four preceding quarters.

The weak performance of the economy continued to reflect low external and domestic demand. Low domestic demand reflected the impact of depressed real wages and high unemployment the central bank said. The data compares with a decline of 1.3 percent that the Statistical Institute of Jamaica said occurred in the March quarter and an estimated decline within the range of -1.2 per cent and -0.2 per cent by BOJ.

The preliminary out turn compares with the central bank’s forecast for the quarter of real GDP growth within the range of -0.5 per cent to 0.5 per cent for the June 2013 quarter.  This performance it then said should reflect expansions in Mining & Quarrying and Construction offset by contractions in Hotels & Restaurants and Agriculture, Forestry & Fishing.

BOJ600x250The central bank outlined the various areas of growth or contraction. For the review period, contractions are estimated for the tradable and non-tradable industries. The performance of tradable industries primarily reflected declines in Export Agriculture, Manufacturing and Hotels & Restaurants. Electricity & Water Supplies and Domestic Agriculture drove the contraction in the non-tradable industries.

Agriculture, Forestry & Fishing is assessed to have contracted further in the June 2013 quarter, relative to average quarterly decline of decline of 2.1 per cent for the preceding four quarters. The decline in the industry was largely associated with unfavourable weather conditions, weak global demand and the continued impact of the coffee rust disease. Specifically, the outturn for the review quarter reflected contractions of 5.7 per cent and 41.0 per cent in domestic and export crop production, respectively. This compares to an expansion of 12.7 per cent in domestic crop production and a decline of 20.4 per cent in export crop production in the June 2012 quarter. The estimated decline in export crop production largely reflected a contraction of 41.3 per cent in sugar cane milled relative to a decrease of 20.4 per cent in the corresponding quarter of 2012. The fallout in sugar cane milled reflected the earlier commencement of the crop year relative to the corresponding period in 2012.

For the review quarter, Hotels & Restaurants is estimated to have contracted marginally relative to growth of 4.7 per cent in the June 2012 quarter. Of note, the industry’s performance was reflective of estimated declines in both sub-industries. The fall in Hotels was inferred from declines of 0.2 per cent and 0.4 per cent in stop-over visitor arrivals and visitor expenditure, respectively, relative to the corresponding quarter in 2012.

With the exception of the March and December 2011 quarters, Electricity & Water Supply is assessed to have contracted since the March 2010 quarter. The performance of the industry in the June 2013 quarter reflected decreases of 2.3 per cent and 0.1 per cent in electricity consumption and water production, respectively. Lower electricity consumption was primarily influenced by disruptions in transmission due to technical losses and theft. Continued drought condition hampered water production during the review period.

Following five consecutive quarters of growth averaging 0.7 per cent, output for Finance & Insurance Services is estimated to have contracted in the June 2013 quarter. The downturn was largely institutions’ participation in the National Debt Exchange in February 2013.

Mining & Quarrying is estimated to have recorded growth in contrast to the contraction of 9.7 per cent in the June 2012 quarter. The improvement in the industry was primarily reflective of increased capacity utilization of 40.6 per cent in the alumina industry relative to 37.4 per cent in the June 2012 quarter. This improvement reflected normalization at one alumina plant that had encountered technical difficulties in the corresponding period of 2012. Against this background, total alumina production increased by 8.6 per cent. However, due to maintenance activity at the bauxite plant, crude bauxite production declined by 4.4 per cent. In this context, total bauxite production grew by 2.2 per cent during the period.

For the June 2013 quarter, marginal growth is assessed within Construction compared to a contraction of 4.2 per cent in the preceding June quarter. The performance of the industry mainly reflected the impact of infrastructural development programmes and hotel projects such as Highway 2000, Riu Palace Jamaica and Memories White Sand Resort.

Related posts | Economy probably contracted 2.5% in Q2 | Mining & Agriculture dent GDP badly | BOJ: Little or no growth to June | BOJ estimates GDP decline in Q1

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BOJ confirms IC Insider FX report

August 21, 2013 by

Jamaica’s central bank purchased US$193.6 million (net) from the market in the context of tight Jamaica Dollar liquidity during the June quarter putting the Net International Reserves at end of June to US$1.003 billion, US$119 million above the outturn for end of March 2013. The increase is in line with what IC Insider surmised in our post “What’s BOJ up to in FX & money market?” that it was the central bank driving the exchange rate movement. The Bank’s gross reserves at end-June 2013 amounted to US$1.88 billion, representing 12.9 weeks of projected goods and services imports.

The central bank in its latest release on the economy stated that “given periodic episodes of demand pressures, the Bank offered two USD indexed bonds and nine VR instruments as part of its liquidity management programme. These actions would have also constrained the pace of adjustment of the exchange rate”.

BankofJamaicaBOJThe Bank estimates that there was a decline of US$72.4 million in Net Private Capital (NPC) flows during the quarter. NPC flows declined in the context of heightened concerns regarding the near-term outlook for the exchange rate. This reduction was, however, constrained by tight Jamaica Dollar liquidity which limited the ability of investors and merchants to hedge against further movements in the exchange rate. In this regard, the net open foreign currency position of authorized dealers (AD) is estimated to have declined by US$207.3 million during the quarter. Most of the reduction in AD positions occurred in June. These developments contributed to an increase of 10 per cent in average per diem purchases to US$28.8 million relative to the March 2013 quarter. Concurrently, average per diem sales increased by 25.1 per cent to US$32.3 million, the BOJ statement concluded.

Related posts | What’s BOJ up to in FX & money market? | BOJ offers 3 new CDs | BOJ raises rates to attract money

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Government may wipe out deficit

August 21, 2013 by

Jamaica could wipe out its fiscal deficit for the 2013/14 fiscal year if measures announced by the Government achieve the targets set. A primary surplus, the target that has been set, will translate to a surplus before interest cost of around $100 billion. The Minister of Finance spoke of a potential $17 billion savings from the swap out of old loans into loans with lower interest rates that would reduce interest cost to around $100-120 billion.

According to the Minister of Finance, the first debt exchange in 2009 saw the average coupon on outstanding domestic debt decline by an average of 650 basis points to 12.5 per cent. The JDX resulted in $700 billion domestic debt refinanced from an average of 18 per cent to 12 per cent; 25 new benchmark securities replaced 350 illiquid bonds; and 99.2 per cent participation — the highest on record world-wide.

The estimated annual interest cost savings for the Government was projected at $41 billion. In fact the government saved vastly more in the first full year as interest rates fell sharply afterwards.

The new debt exchange earlier in February of this year (JDX2) along with the tax package should see interest rates across the system fall as more funds are taken out of the economy with limited need to borrow new funds. This won’t happen immediately but over the course of the year. This will mean lower borrowing cost but also lower withholding taxes for government. The wiping out or virtual wiping out of the fiscal deficit will mean government will be borrowing no new funds from the local economy and could well repay some to the system.

Pressure will be eased off the Jamaican dollar and people should not be surprised if there is some revaluation of the dollar. The JDX2 debt exchange will not have the same impact as the first one on the business sector. For one, interest rates were in the mid-teens to mid-twenties when the first one was implemented. JDX2 is expected to save $17 million less than the $41 million estimated back in 2009 and is worth far less in real terms as inflation has made the savings worth about 50 percent or so less. Banks are less dependent on government paper for income as they have aggressively expanded their loan portfolio.

The tax package is a poor commentary on the government’s views on increased production and productivity. To add taxes on businesses that our main trading partners don’t have to bear is a direct hit on the country’s competitiveness. Increasing cost on production is clearly not the way to go but that is exactly what’s been done.

All in all, the main objectives of cutting the fiscal deficit quickly are right but many of the methods being implemented are the wrong medicine.

Related posts | Fiscal deficit target exceeded again | Gov’t raking in taxes | GOJ: Deficit cut

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Economy probably contracted 2.5% in Q2

August 20, 2013 by

Data out of Jamaica Public Service Company (JPS) suggest the economy probably contracted by as much as 2.5 percent in the June quarter compared to the same period last year. According to JPS in its June 2013 quarterly report, the amount of electricity sales net of energy costs fell by 16 percent compared with the same quarter last year. Over the same time the exchange rate for the Jamaican dollar fell by 13.6 percent. JPS reports their accounts in US dollars but bill in Jamaica dollars with the main energy cost tied directly to US dollars.

The consumption of electricity is not a fool proof determinant of Gross Domestic Product (GDP) performance but since electricity is used in generating most economic activity, it’s a good guide of what may be happening in the wider economy. Earlier this year, STATIN reported the GDP data that showed a decline of 1.3 percent in the first quarter.

JPS reported in its June quarter profit statement a decline in revenues of 8.5 percent and gross income fared even worse with a 16 percent fall, compared to the similar period in 2012. By contrast, the year-to-date revenues are down a little under 8 percent and gross profit off just 6 percent. The gross profit would be a better indicator than gross revenues as the latter removes the impact of price movement of fuel on the computation.

power-lines150x150pxJPS grossed US$267 million in the June quarter versus $291.5 million in June 2012 and US$536 million compared to $581.7 million in the six months to June 2012. Gross profit came out at US$62 million for the June quarter this year, while the gross profit in 2012 was US$73.8 for the June quarter and for the six months to June US$130 million and US$137.9 for the six months to June 2012.

Expenses | JPS was able to cut operating expenses by US$6.7 million in the quarter and just over US$8 million for the six month period compared to 2012. No doubt the change in the value of the Jamaican dollar versus the US dollar reduced much of the local input cost when converted to US dollars. But the cost of money went up US$2.3 million to nearly US$15 million for the June quarter and nearly US$9 million to reach US$32.6 million for the six months.

Profit | JPS ended up with profit of only US$1.1 million in the latest quarter and only US$315,000 for the six month period. In 2012, profit for the quarter was US$5.887 million and year to date US$7 million. The problem is that these returns are well off the rate of return that JPS is allowed to make under their licensing regime, which is about a 16 percent return on equity.

The poor profit performance has impacted the finances of the company. While equity is at US$445 million, debt is running closely behind at US$379 million. Cash collection is an issue with receivables equalling the full quarter’s revenues when it should not exceed 45 to 60 days. But cash, which was at US$26.5 million at the end of 2012, is now only US$4.3 million at the end of June — what would be called a fast evaporation of funds.

Related posts | Mining & Agriculture dent GDP badly | BOJ: Little or no growth to June | BOJ estimates GDP decline in Q1

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Inflation continues moderation

August 20, 2013 by

The rate of inflation as computed by the Statistical Institute of Jamaica seems well under control especially in light of the impact of the movement of the Jamaican dollar which would have had impacted on prices as well as the increase in the price of oil on the world market. The calendar year–to-date inflation rate was 4.4 per cent up to July. The fiscal year-to-date since April 1st and point-to-point rates were 1.6 per cent and 9.7 per cent respectively.

The All Jamaica ‘All Divisions’ Consumer Price Index for July was 200.9. The rate of inflation was 0.5 per cent, an increase of 0.3 percentage point above the 0.2 per cent rate recorded for June 2013. The index for the heaviest weighted division ‘Food and Non-Alcoholic Beverages’ moved upward by 0.6 per cent mainly due to higher prices for ‘Fruit’ and Vegetables and Starchy Foods’. The index for the group ‘Fruit’ rose by 2.4 per cent, while ‘Vegetables and Starchy Foods’ went up by 1.2 per cent. There were also upward movements of 0.2 per cent in the index for ‘Transport’ and 0.8 per cent for ‘Housing, Water, Electricity, Gas and Other Fuels’, which are the second and third heaviest weighted divisions respectively.

‘Communications’ was the only division with a decline in its index. The 3.7 per cent decline resulted from reduced call rates following the decision of the Offices of Utilities Regulation to lower termination rates for telephone calls.

The other divisions that recorded increases were ‘Alcoholic Beverages and Tobacco’ 0.3 per cent, ‘Clothing and Footwear’ 1.3 per cent, ‘Furnishings Household Equipment and Routine Household Maintenance’ 0.5 per cent, ‘Health’ 0.1 per cent,  ‘Recreation and Culture’ 0.6 per cent, ‘Restaurants and Accommodation Services’ 0.3 per cent, and ‘Miscellaneous Goods and Services’ 0.7 per cent. There was no movement recorded for ‘Education.

There were increases in all three regions Greater Kingston Metropolitan Area (GKMA) up by 0.8 per cent, Other Urban Centres (OUC) up by 0.5 per cent, and Rural areas increased by 0.3 per cent

Related posts | Business inflation expectations | Inflation slows to a crawl | Inflation up in May

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More employed in March but . . .

August 20, 2013 by

More Jamaicans were employed in March this year than for the same period in 2012 as 8,700 persons found employment bringing the number of employed persons to 1,107,400 as against 1,098,700 recorded in March 2012 and 1,093,200 in December last year. For males, it increased by 6,300 (1.0 percent) to 630,300 and for females by 2,400 (0.5 percent) to 477,100 for the period. Unfortunately, the number of increased employed could not help in the reduction of the unemployed as those rose 30,200 raising the unemployed rate to 16.3 percent, the worse rate since 1997 when the rate was 16.5 percent.

The Employment Rate for March 2013 was 83.7 percent, which was a 1.9 percentage point decline from the 85.6 percent in March 2012. The Employment Rate declined for both males and females over the period. For males, it declined by 1.1 percentage points, moving from 89.1 percent to 88.0 percent and for females it declined by 2.7 percentage points, moving from 81.4 percent to 78.7 percent over the same period.

The Occupation group ‘Clerks’ had the largest increase (6.0 percent) in the number of persons employed moving from 95,200 in March 2012 to 100,900 in March 2013. The group ‘Plant and Machine Operators’ and ‘Assemblers’ had the largest decline (4,300 persons) moving from 62,000 to 57,700 during the same period.

HelpWantedads150x150The industry group ‘Wholesale & Retail, Repair of Motor Vehicle & Equipment’ increased by 17,000 (7.8 percent) moving from 217,100 in March 2012 to 234,100 in March 2013. During the same period employment in ‘Manufacturing’ declined by 7,200 persons (9.2 percent).

Labour force | In March 2013, the number of persons in the Labour Force was 1,322,500, which was 38,900 (3.0 percent) higher than the 1,283,600 recorded in March 2012. The male labour force increased by 15,600 (2.2 percent), from 700,500 in March 2012 to 716,100 in March 2013, and the female labour force increased by 23,300 (4.0 percent) moving from 583,100 to 606,400 in the same period.

The number of persons who were classified as ‘Outside the Labour Force’ in March 2013 declined by 33,300 a 4.2 percent decrease to reach 753,700, when compared to 787,000 in March 2012. The number of males ‘Outside the Labour Force’ declined by 12,900 (4.3 percent) from 315,600 and the females by 20,400 (4.5 percent) from 471,400 over the period.

Unemployed | The number of Unemployed persons in March 2013 was 215,100, an increase of 30,200 (16.3 percent) when compared with 184,900 in March 2012. The number of unemployed males increased by 9,500 (12.4 percent) and the number of females by 20,700 (19.1 percent) for the same period.

The Unemployment Rate for March 2013 was 16.3 percent compared to 14.4 percent in March 2012. For the same period, the unemployment rate for males was 12.0 percent compared to 21.3 percent for females.

Youth unemployment a big problem | Unemployment rates among youths aged 14-24 years was 38.5 percent for March 2013. This was an increase of 4.1 percentage points when compared with 34.4 percent in March 2012. The male unemployment rate for youths was 30.1 percent compared to 27 percent for females.

The March 2013 Labour Force Survey was conducted by the Statistical Institute of Jamaica (STATIN). The reference week for this survey was March 25-31, 2013. The 2011 Population Census distribution was used to derive all the estimates for the survey.

Related posts | Employment rate stabilised in 2012

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Non-traditional exports narrow trade deficit

August 6, 2013 by

Jamaica’s trade deficit narrowed for the first 4 months of this year by US$80 million as non-traditional exports jump by US$32 million to exceed traditional exports as traditional exports fell during the period and imports dropped. The overall traded deficit fell to US$1,522 million, down from US$1,602 million in 2012.

Domestic Exports | For the year to April, non-traditional exports increased by US$32 million or 12.4 percent to reach US$294 million. Its contribution to total domestic exports increased from 44.1 per cent in the January to April 2012 period to 50.7 per cent in the 2013 period, while traditional domestic exports fell to US$287 million by 13.6 percent or US$45 million when compared to the same period in 2012. The fall of traditional exports was impacted largely by the decline in “Mining and Quarrying” and “Manufacture”. Total export of goods is valued at US$605 million and is down from US$611 million in the 2012 period, a decrease of $6.6 million. The Jamaica Free Zone accounted for US$92 million of total exports during the 2013 period.

Imports | The country imported goods valued at US$2,127 million during the period, a decrease of US$87 million or 3.9 percent.  The value of imports, for all but three commodity groups declined. “Mineral Fuels, etcetera” despite its decline, had the largest share of imports representing 34.5 percent valued at US$733 million, “Machinery and Transport Equipment” valued at US$280 million, declined from the US$294 million recorded in 2012 by US$13 million or 4.5 per cent.  “Manufactured Goods” valued at US$175 million also decreased, moving downwards by US$27 million or 13.2 per cent.

Caricom_logo150X150Caricom| Imports from CARICOM for the first four months of 2013, fell by US$99 million or 28.4 per cent compared with 2012 and accounts for 11.7 percent of total imports with a value of US$249 million compared to US$347 million recorded for the 2012 period. “Mineral Fuels, etcetera” decreased during the 2013 review period, by US$111 million or 42.7 per cent and was valued at US149 million. Other notable commodity groups imported from the region included “Food”, valued at US$60 million, “Beverages and Tobacco” US$14 million, “Chemicals”, US$10 million, and “Manufactured Goods”, US$8 million.

Total exports to CARICOM for the January to April 2013 period was valued at US$21 million, representing a decline of US$2 million or 8.8 per cent. Domestic exports to CARICOM decreased to US$17.8 million and accounted for 3.1 percent. Re-export for the period decreased and was valued at US$3.2 million, a fall of US$0.6 million or 16.2 per cent.

For the first four months of 2013, Jamaica incurred a trade deficit with her CARICOM partners of US$227.8 million when compared to the US$324.4 million recorded for the first four months of 2012.

USA deficit big drop | During the month of April 2013, the United States of America (USA) remained Jamaica’s main trading partner with imports worth US$744 million and total exports of US$322.9 million. Jamaica’s trade deficit with USA was US$421.5 million, compared to US$565.5 million in the January to April 2012 period.

The trade gap narrowed by US$96.6 million or 29.8 per cent, due mainly to lower imports of “Mineral Fuels, etcetera”.

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Fiscal deficit target exceeded again

August 1, 2013 by

A $1.5 cut in interest payment, a $2 billion reduction in capital spend and $1 billion saved on programs was more than enough to wipe out a reduction in revenues of $2.4 billion due to a number of factors in June this year.

Some $440 million in the revenue shortfall came from increased payment of withholding tax refunds on interest. Tax on dividends may have been over estimated on the assumption that the payment pattern would have remained. Instead many companies brought forth payments to March thus beating the taxation for a part of the annual payment.

Jamaica_coat_of_arms_280X150Telephone tax was way down no doubt a result of lower calling rates. Overall international trade delivered as planned but a few fell somewhat short. Local GCT was 15 percent up or around $500 million over forecast and was up 6 percent above the amount collected in June last year, while SCT fell short by $700 million against 2013/4 budget but this may be due to a shift between May and June as the May target was over achieved and may have shifted some of the inflows to that month which enjoyed $900 million more inflows than planned. Company profit tax fell $500 million short of plan.

Due to the savings on the expenditure side and overachievement in the first two months, the fiscal deficit to date is running well ahead of plan by $4.8 billion, resulting in the deficit coming in at $5.4 billion. The deficit for May was just $1.63 billion against projection of $3.7 billion. The target for July is for a deficit of $1.7 billion, but August is a huge $10.8 billion.

Compared to 2012 revenues, this year is running well ahead of the quarter to June last year by 13.5 percent and 16.5 percent in the month of June versus June last year. In the past, the challenges start to occur in July and onwards when revenues starts to fall off from target. The sharp slowdown in cigarettes sales reported by Carreras could negatively affect special consumption tax revenues going forward for a while at least.

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Business inflation expectations

July 23, 2013 by

A recent survey was conducted in May 2013 with 300 respondents showed that business sector expected inflation for the calendar year to be 10.3 percent, which is lower than the 10.6 percent they expected when the April 2013 survey was done. The expected inflation for calendar year 2013 was higher than the outturn of 8.0 per cent for 2012 and the annual point to-point inflation of 9.1 per cent as at May 2013.

In the latest survey respondents’ expectation of inflation 12 months ahead was down to 11.2 percent in the May 2013 survey from the 11.8 percent indicated in the April 2013 survey. Bank of Jamaica is saying that the expectation for lower inflation could have been indicative of the abatement in uncertainty surrounding the Government’s economic programme.

The central bank states that the Statistical Institute of Jamaica (STATIN) undertakes surveys of businesses on behalf of the Bank of Jamaica to ascertain the expectations about variables which are likely to have an impact on inflation in the near-term. In this regard, the survey captures the perception of Chief Executive Officers, Managing Directors and Financial Controllers about the future movement of prices, current and future business conditions and the expected rate of increase in wages and salaries. These responses assist the Central Bank in charting future policy decisions.

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Improved business outlook

July 22, 2013 by

The perception of present and future business conditions in the most recent survey amongst Chief Executive Officers, Managing Directors and Financial Controllers found that the business community perception has improved relative to the previous survey in April. The survey was carried out by Statin on behalf of Bank of Jamaica in May and data was collected from 300 respondents.

Perceptions about future business conditions also improved for the second consecutive survey. The improvement in these perceptions was in contrast to the declining trend observed in both indicators since the December 2011 survey. “Of note, the improvement may be attributed to continued reduction in uncertainty about the Government’s economic programme” the central bank commented.

Operating Expenses | Respondents continued to indicate that they expect the largest increase in production costs in the next 12 months to reflect the higher cost for utilities. Other costs that were expected to contribute significantly to inflation in the next 12 months included stock replacement and fuel & transport costs. The cost of raw materials and wages & salaries were the input costs least expected to increase over the next 12 months.

The survey also covered a number of other areas in addition to business conditions.

FutureBusinessConditionsGraph

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