Patrick Hylton | Impact of COVID-19 and economic outlook for Jamaica: accelerating out of the crisis
The year 2020 has proven to be a roller-coaster year for communities worldwide. We are operating in uncharted territory characterised by an unclear resolution path in many instances, resulting in our everyday lives being fundamentally changed and creating a high-degree of uncertainty in global economies. The COVID-19 pandemic has brought significant shocks to all in the global economy. Many of those shocks are likely to have long-lasting implications – for individuals, businesses, regulators, leaders. Jamaica has not been spared these effects.
At the same time, we have observed some unprecedented change and transformation in Jamaica over the last few months – most of which are likely to have long-lasting positive effects. For example, the Government of Jamaica distributed CARE subsidies through a completely digital application and disbursement process which facilitated speed, efficiency, and transparency. With little physical interaction required of this process, it was also consistent with social distancing as a mechanism for preventing the spread of the virus. We have also seen young entrepreneurs come together to leverage 3D printing to produce face shields. This shows that the COVID-19 crisis also brings significant opportunities for transforming our businesses and our economy. Whether we emerge stronger from the pandemic will depend on our ability to seize those moments effectively and how we go about saving lives and livelihoods.
The number of COVID-19 positive cases, up to Friday, stood at 8,670.
Impact of COVID-19 pandemic: Setting the context and outlining the economic implications?
Since its emergence in late 2019, the COVID-19 pandemic has affected every corner of the global economy with far-reaching implications. With the death toll still rising and a vaccine not yet fully approved, some countries are seeing a second wave.
Leaders have taken different epidemiological and economic measures to tackle COVID-19 challenges, ranging from extremely restrictive measures to fully contain the virus spread, resulting in full lock-down, to less restrictive measures largely driven by public sentiment and the desire to keep economic (and other) activities mostly uninterrupted. The jury is still out on the optimal approach, however, five important effects of COVID-19 have far-reaching implications:
Effect #1: Government spending worldwide has significantly accelerated due to investment in ramping up health infrastructure and deployment of economic stimulus packages to support crisis-affected businesses and individuals. The Jamaican Government has responded with the largest programme in its history: a $25 billion stimulus package to sustain economic activity and support those in need. Elsewhere, governments are deploying similar solutions (the response from G20 governments as a percentage of GDP has been three times greater compared to the 2008 financial crisis), aiming to mobilise economies and drive down unemployment rates. Such measures need to be very targeted to achieve their envisaged effects without creating long-term pressure by unsustainably increasing fiscal deficits.
Effect #2: Industry has seen widespread contraction, with strong effects on tourism and transportation. COVID-19 caused a major global recession across the world. Output is expected to decline by 4 per cent -8 per cent in 2020 globally. Economies dependent on tourism could be among the harder hit and could experience additional foreign-exchange pressure.
Effect #3: Unemployment has been on the rise due to business uncertainty while travel restrictions negatively affected employee productivity. This recession is particularly hard on employees. Latest estimates by the International Labour Organization indicate a 14 per cent loss in working hours worldwide during 2020 Q2, equivalent to nearly 400 million full-time jobs. This is even higher in Central America and the Caribbean, going up to 20 per cent. The leisure and hospitality sectors were among the hardest hit. A study in the United States showed that they accounted for more than 40 per cent of unemployment claims as of third week of March. In Jamaica, double-digit unemployment rates are projected for 2020, reversing the downward unemployment trend observed since 2017. In parallel, the forced transition to remote work has caught many institutions off guard – lacking infrastructure to pivot quickly – resulting in declining productivity.
Effect #4: Personal consumption and spending has slowed down substantially, and logistical restrictions have driven up focus on the consumption of local products. Affected by decreasing income and increasing employment uncertainty, individuals have responded with a significant reduction in personal consumption (50-60 per cent + decline versus pre-COVID period for the initial pandemic period). Remaining consumption is mostly of local products globally as international trade and services (e.g., leisure, travel) have seen significant reduction. This creates additional opportunities for local businesses to thrive and capture market opportunities with innovative offerings.
Effect #5: Ongoing trends – digitisation chief among them – have accelerated amid the COVID-19 pandemic, creating a new landscape for businesses and regulators. With the health concerns and ongoing restrictions in an effort to “flatten the curve”, individuals and businesses have accelerated digital adoption. Global surveys show that businesses consider digital channels twice as important as traditional (brick-and-mortar) channels going forward while a large majority of individuals (70 per cent plus) who first tried out digital services expressed a high degree of satisfaction and intend to use them going forward.
Next week: Economic outlook for 2021 and beyond: When can we expect recovery and how to accelerate it?
Patrick Hylton is NCB Financial Group President and CEO, and chairman of the board of National Commercial Bank Jamaica. Send feedback to email@example.com.