Tue | Oct 27, 2020

JMMB expects economy to decline faster than predicted

Published:Friday | August 28, 2020 | 12:23 AM
Keith Duncan, CEO of JMMB Group Limited.
Keith Duncan, CEO of JMMB Group Limited.

Financial conglomerate JMMB Group Limited expects the dollar to steadily slide and inflation to remain low.

The company led by Keith Duncan – the same man who heads the monitoring group that’s meant to help keep Jamaica’s economic reform programmes on track – also thinks the economy could decline at a “faster rate than expected” by the authorities.

“In the absence of a vaccine, we expect second, if not third and fourth waves where persons are infected with the coronavirus,” JMMB said in its annual report released on Wednesday.

The Government and the International Monetary Fund forecast a decline of over five per cent for 2020. However, on Wednesday, the Bank of Jamaica, BOJ, adjusted its forecast to a contraction within the range of 7-10 per cent, giving fillip to JMMB’s outlook. Previously, the central bank’s estimate was for a 4-7 per cent contraction.

“Considering the challenges facing the global economy, we expect inflows from tourism and remittance to remain subdued for the rest of the year,” said JMMB, whose holdings include a commercial bank, securities brokerage and insurance brokerage.

“This will negatively affect operations across all sectors, including agriculture, retail and distribution, and manufacturing. Steep cuts in capital expenditure by the Government will have a sharp negative effect on the construction industry,” the conglomerate said.

As to the prospects for the foreign exchange market, the group sees the fallout from tourism due to travel restrictions and reduced remittances due to job losses in source nations slashing foreign inflows by nearly half, likely resulting in demand outstripping supply.

In that scenario, the currency would depreciate further. The value of the Jamaican dollar reached a new milestone in the past two weeks when it depreciated to $150 against the US dollar, and has since been trading in the $150-$151 band.

However: “Improvements in tourism and remittance flows could reduce depreciatory pressure on the Jamaica dollar and catalyse the return of the periodic month-over-month, up-and-down shift in its value,” JMMB said.

JMMB explained that, on average, the depreciation of the currency remains within the annual fluctuation band when compared over five years. The dollar usually dips by single-digit, annually, but the pace has increased in recent months towards double-digit levels.

Up to Wednesday, the JMD had lost more than 13 per cent of its value year-to-date.

The group also reasoned that inflation at 5.7 per cent over 12 months to July was unlikely to be pressured due to subdued economic activity, and that the central bank was likely to maintain a stable policy rate.

Bank of Jamaica again left its 0.5 per cent policy rate unchanged this month. Its next rate decision is due on September 30.

“With the policy rate as low as it is, there is limited room for further cuts; therefore, it is likely that the BOJ will utilise less orthodox means, if required, to steer domestic economic activities,” JMMB said.

The bulk of JMMB Group’s operations are in Jamaica, but it also has businesses in Dominican Republic, and Trinidad & Tobago, and holds a 22.5 per cent stake in regional insurance giant Sagicor Financial Company.

JMMB Group made profit of $780 million in the June quarter, down from $1.1 billion a year earlier, due in part to the impact of COVID-19 on its operations. Group assets stood at $432 billion, with equity of $47 billion.

“For the upcoming quarter, we expect uncertainty to persist in the financial space as the progression of COVID-19 and its further impact on economies is yet to be determined,” said CEO Keith Duncan in the statement accompanying the second-quarter results.