Wed | Aug 23, 2017

Jamaica’s growth linked to strong business, consumer confidence

Published:Friday | January 22, 2016 | 1:00 AMMcPherse Thompson

Stronger business and consumer confidence, which lifted growth in Jamaica, as well as a pickup in investment in the Dominican Republic, have been largely attributed to the 3.3 per cent economic expansion in the Caribbean in 2015, according to the World Bank.

Jamaica experienced 1.5 per cent growth in the third quarter to September 2015, following on economic expansion of 0.4 per cent and 0.6 per cent in the first and second quarters of 2015, the Planning Institute of Jamaica reported. Data for the fourth quarter to December 2015 are not yet available.

The World Bank's newly released 2016 Global Economic Prospects, said economic activity in the Latin America and Caribbean region - LAC - contracted by 0.9 per cent during the year.

Sharp declines in several South American economies, due in part to domestic challenges exacerbated by the continued slump in commodity prices, outweighed output expansions in Mexico, Central America and the Caribbean, it said.

The South American economy shrank by 2.1 per cent in 2015. Brazil's GDP contracted 3.7 per cent, due to elevated inflation and widening fiscal deficits, and Venezuela shrank 8.2 per cent, weighed down by high inflation and import controls that curtailed consumer spending and impeded production. Ecuador contracted 0.6 per cent as a result of low oil prices and the appreciation of the United States dollar, which hurt its competitiveness.

Central America, Mexico growth

Growth rose modestly in Central America and Mexico. Mexico grew 2.5 per cent, supported by expanding exports to the United States, despite being weighed down by low oil prices. "Output in the Caribbean expanded by 3.3 per cent as investment picked up in the Dominican Republic and stronger business and consumer confidence lifted growth in Jamaica," the World Bank report said.

In its outlook, the World Bank said a gradual return to growth is anticipated in the medium term as policy uncertainty diminishes, commodity prices stabilise, growth firms in the United States and the euro-area economies continue to recover.

Activity in the region is projected to be flat in 2016, but then recover and strengthen to an average of 2.3 per cent for 2017-18. Growth in Mexico, Central America and the Caribbean will offset weakness in South America. Activity excluding high-income countries in the region is forecast to rise to a 0.1 per cent pace in 2016.

The Bank said South America is not expected to resume growth until 2017, as the subregion's largest economies gradually adopt policies to unwind macroeconomic imbalances and restore business and consumer confidence.

Prospects are brighter for Mexico and Central America, which will benefit from ties to the strengthening United States economy and robust remittances in line with stronger US labour markets.

Caribbean economies to expand

Similarly, Caribbean economies are on track to expand three per cent, as a result of economic proximity with the United States, robust remittances and solid tourism activity.

Brazil is forecast to contract by 2.5 per cent in 2016. The eventual calming of inflation fears and narrowing of fiscal deficits will lessen the need for further interest rate increases and cuts in government spending, and should pave the way for a return to growth in 2017. With oil prices expected to stabilise around current levels, the Venezuelan economy is projected to bottom out in 2018.

Growth in Mexico should accelerate to three per cent.

According to the report, LAC faces the risk of financial volatility and reduced capital flows sparked by higher US interest rates, and higher investor risk aversion. The region would also be negatively impacted by a protracted slowdown in Brazil and Venezuela and is threatened by a more severe slump in commodity prices, which would hurt export and government revenues of commodity exporters.

Extreme weather could also set back growth. Forecasts suggest the El NiÒo weather pattern will be the strongest on record, and could hurt agriculture and potentially damage infrastructure, the World Bank said.

mcpherse.thompson@gleanerjm.com