Thu | Dec 8, 2016

Advertorial: Financial Outlook for 2015

Published:Friday | February 20, 2015 | 12:36 PM

Improvement in the macroeconomic outlook is expected to continue in the 2015 calendar year, as it is highly probable that the Government of Jamaica (GOJ) will meet all the conditionalities, under the Extended Fund Facility (EFF) with the International Monetary Fund (IMF), for financial year 2014/15.  We anticipate this will lead to continued increases in business and consumer confidence, as well as improvement in key macroeconomic variables.

The inflation rate for 2014 was 6.4%, and it is expected that for 2015 the rate will be within 6% – 8%. This projection is based on oil prices remaining relatively low during 2015, due to elevated supplies for most of the period, as well as the expectation that the world economy will grow at a slow pace of approximately 3.5%, based on the IMF’s estimates.

The Jamaican dollar (JMD) will continue to depreciate steadily against the US dollar (USD), due in part to tight USD liquidity and the likely actions of the central bank.  The current account deficit remains at elevated levels, despite improvements. As at September 30, 2014, the current account deficit was US$791.5 million, which was US$30.2 million or 3.5% lower than the similar period in 2013.  One of the central pillars of the EFF is to improve the competitiveness of the Jamaican economy and reduce the current account deficit, thus, the central bank will continue to facilitate an orderly depreciation of the Jamaican currency. The net international reserves (NIR) should remain at around US$2 billion, facilitated by savings from oil importations of around US$500–US$700 million.

Short-term interest rates for 3 and 6 month Treasury bills should fall within the 6%-7% band, as JMD liquidity is expected at moderate levels.  GOJ activities in the Jamaican market for loanable funds will remain subdued; as a result, alternate low funding initiatives will be required to help finance the budget. The government is expected to balance the budget in 2015/16, as domestic maturities are low and financing is in place to meet a portion of external maturities.

Real Gross Domestic Product (GDP) growth for 2015 is expected to fall within the band of 1%-1.5%, led by growth in tourism, mining and agriculture. The favourable outlook in tourism is due to continued improvements in the US economy and a strong USD. Growth in construction is expected to remain subdued until end-of-year.

Generally, there is a favourable outlook for the Jamaican economy.  The country, however, is vulnerable to external shocks, such as commodity prices and bad weather, which could derail the fiscal profile, as well as accelerate the inflation rate occasioned by higher domestic food prices. 

INVESTMENT OUTLOOK:

Due to the expectation of continued currency movement, assets that provide hard currency exposure are a good hedge against both devaluation and inflation.  A diversified portfolio containing stocks, spread across various industries, is good. Recommended stocks are GraceKennedy and the Lasco Group, which offer diversity of income streams and product offerings; while Cargo Handlers offers good cash flow and strong dividend payments, hence it is also worth acquiring.

Please contact JMMB for further details.

- Advertorial