Mon | Jan 25, 2021

Densil A. Williams | Economic headwinds for Ja as growth in the US tumbles

Published:Sunday | August 2, 2020 | 12:05 AM
Densil Williams
Densil Williams

There is an intricate link between the Jamaican economy and the United States (US) economy. Two of Jamaica’s top foreign exchange earnings, tourism and remittances, have the bulk of their revenues coming from the US. Further, the US is a top destination market for Jamaica’s exports, and also a strong destination market for migrants.

So, when the US economy does not perform well, we can expect that Jamaica will feel the effects of this weak performance, and especially when it affects consumer spending.

This is why the recent news out of the US makes for very uncomfortable reading for any hope of an early revival of the Jamaican economy in the near term.

On July 30, 2020, the US Bureau of Economic Analysis, that institution which provides data on the nation’s economic affairs, produced the grim news that, for the second quarter of 2020, the US economy contracted by 32.9 per cent, far worse than was expected and about six times worse than the contraction in the first quarter. Further, this is seen as the worst decline in over 70 years. Even more worrying are the categories which have led to this precipitous quarterly decline.

According to the bureau, the decline stems from declines in personal consumption expenditure, exports, private inventory investment, non-residential fixed investment, residential fixed investment, and state and local government spending.

These declines could have been more severe if it were not for strong stimulus funding from the federal government. No doubt, the containment measures implemented by the Government to deal with the spread of COVID-19 would have contributed significantly to this dismal performance. So, although some analysts are seeing silver lining in the quarters ahead, this will be dependent on how long the virus remains and the types of containment measures that are put in place to contain its spread. The management of the virus will determine the economic outcomes over the next quarter and beyond.


Our own local economic planning agency, the Planning Institute of Jamaica (PIOJ), is predicting that the June quarter for the Jamaican economy will see GDP contraction in the range of 12-14 per cent. This, by any indication, will be a massive shock to the Jamaican economy. I still think the numbers will be worse than this, given that this is the quarter when the full effect of the containment measures would have taken root.

Further, this projection, I am sure, did not foresee the precipitous decline in quarterly growth to one of our major trading partners, the US. With us now knowing the estimates from the US for the June quarter, we should recalibrate our assumptions and revisit the predictions for Jamaica. For, it is clear that with the US facing such a massive decline, the impact on Jamaica will be severe as well.


Even in good time pre-COVID 19, while the economic indicators in Jamaica were trending in the right direction, we still struggled to have robust and sustained growth. The December quarter before COVID-19 hit saw growth flat at zero per cent and the March quarter saw contraction in output. It will not be surprising, therefore, that amid the COVID-19 restrictions, growth will not be realised any time soon.

We know that the impact on the economy will be significant, but what we cannot say with certainty, at this time, is the quantity of the impact. This will be determined by the length of time the virus stays with us and the kinds of containment measures put in place to prevent the spread. However, from a closer reading of the data from the US, it is clear that Jamaica’s economy will not see any silver lining any time soon. For, with that massive contract in GDP from the US and, most critically, the contraction in consumer spending, and also investments and, notably, imports, there is not much opportunity for Jamaica to earn from this market, one of our largest trading partners.

With lower consumer spending in the US, surely one of the first items to be slashed in the household budget is travel and vacation. This will have a direct impact on the revival of the travel and tourism sector in Jamaica. The bulk of Jamaica’s tourists comes from the US. With the slowdown in their economy, fewer tourists will be travelling to Jamaica. With fewer tourists, the industry will struggle to survive.

This will also have a direct impact on the linkage businesses which depend on the industry as well. For example, our transportation sector, our bars and restaurant sector, our farming sector, etc – all of which benefit from direct and indirect linkages with the tourist sector – will not see any major uptick in the near term. There will be high levels of unemployment in these sectors as well. Overall, their contribution to economic growth will be paltry or non-existent in the very near future.

In addition to tourism, one of the sobering points from the bureau’s data is that imports into the US have also declined. This is not good news for Jamaica. For, given the pressures in the local economy, one of the ways to stimulate growth is through exports. However, since the US consumers are cutting spending, there will not be a strong proclivity towards consuming imported items, but more likely, spending will shift to domestic consumption. This will not be good for increasing export earnings in Jamaica. Again, this will negatively impact on our ability to grow our local economy, as exports are an important variable in the growth calculations.


The signs ahead are not good for growth and economic revival in Jamaica if the US continues to see massive destruction in its GDP. The spillover effects on Jamaica can be quite significant.

Finance Minister Dr Nigel Clarke is reading the signals correctly when he noted that crises like these that the world is now facing normally take at least a decade to recover.

Jamaica’s recovery will be long and painful over the next few years. Jamaica’s only hope is to continue with adroit and prudent economic and fiscal management, which it has embarked on, in a concerted way, since the Bruce Golding/Audley Shaw period in 2007, and which was accelerated and solidified under the Portia Simpson Miller/Peter Phillips era of 2012-2106, and now maintained under the Andrew Holness/Nigel Clarke incumbency.

There is not much separating both Government and Opposition in terms of commitment to prudent economic and fiscal management at this time. For both have shown good and steady progress and have instituted laws and regulations to ensure that whoever occupies Jamaica House does not depart from robust fiscal management.

What is needed beyond the fiscal is a clear strategy to deal with the business environment to ensure the ease of doing business, which has been declining over the last few years, according to World Bank reports; reduction in corruption; and control of crime and violence, which are major obstacles to driving robust economic growth, and especially at this time when the global economy is seeing significant fall-off in GDP and most economies are struggling to grow.

- Densil A. Williams is professor of international business at The University of the West Indies. Email feedback to and