Editorial | Confidence and crisis of the economy
It won’t get too far if the “blue skies” which, according to Don Anderson, businesses and consumers are having a glimpse of, fall behind the clouds. Which is why this newspaper looks forward to a signal from the Holness administration of how it intends to nurture the green shoots of confidence that recently emerged in the economy, but are in danger of being stifled. The current review of the national Budget is an appropriate platform from which to start.
Like the rest of the world, Jamaica has been badly pummelled by the COVID-19 pandemic. Its tourism industry has all but collapsed, the upshot of restrictions on international travel by governments wanting to slow the spread of the disease. Lockdowns and the demands of physical distancing have severely slowed other areas of industry and commerce. It hasn’t helped that storm-related floods towards the tail end of last year’s Atlantic hurricane season battered agriculture.
For the first half of the fiscal year, ending March 31, the island’s gross domestic product, or the total value of goods and services produced over the period, declined 14.6 per cent, when compared to the corresponding period in 2019-2020 fiscal year. As bad as that statistic is, it implies a slowing of the economic contraction. Indeed, between July and September, the second quarter of the fiscal year (but the third for the calendar period), the slump was a sharp 10.7 per cent. The slump in the first quarter, April to June, was 18.7 per cent.
It seems, in the circumstances, that the overall decline for the fiscal and calendar year will be contained within the 12 per cent to 14 per cent projected by the Planning Institute of Jamaica. So, there is a deepening perception that the worst of the downturn may be over – and not merely in the sense that things have bottomed out. People, towards the end of 2020, perceived a mild stirring of economic activity, giving rise to the confidence indices in the surveys Mr Anderson conducts quarterly for the Jamaica Chamber of Commerce.
BUSINESS CONFIDENCE INDEX IMPROVED
In the latest of these, unveiled last week, for the period up to the end of December, the business confidence index improved 19.1 points (17.49 per cent), to 128.3. Consumer confidence was up 3.9 points, nudging the index to 131.7 (three per cent). It is the first time that indices have risen in four quarters.
It is significant what has driven these improvements, albeit very mild with respect to consumers. On almost all fronts, businesses perceived positives. The index for confidence, based on current business conditions, moved from 109 to 132. The one related to expected business conditions improved by 17 points, to 126. With regard to expansion plans, that index, at 84 in September, moved to 113 in December. Firms, too, were more positive about their expectations for profits, whose index rose sharpest – up 33 points (27.5 per cent), to 153.
“So, companies are becoming a little more bullish in their perspective of this situation,” Mr Anderson said. Regarding consumers, he said their improved confidence was driven “by positive expectations of changes in income and job expectations”.
Nigel Clarke, the finance minister, is aware that many intangibles ally with the objective policy conditions, such as macroeconomic stability, to create business and consumer confidence. The mix, however, is hard to achieve, but is quick to dissipate. So, maintaining in our sight this bit of “blue sky’, as Mr Anderson put it, is important to Jamaica. There is no assurance that it will last without support and nurturing.
For example, while macroeconomic stability is important to investment and growth, businesses won’t invest if there are no markets and consumers for their products. Hence our fears of likely short-term challenges. Donald Trump’s mishandling of the coronavirus crisis in the United States, our major market, accelerated, and exacerbated, the collapse in Jamaica’s tourism. Mr Trump’s replacement by Joe Biden will bring rationality and competence to the management of the pandemic, as well as other foreign-policy issues that are in Jamaica’s interest. In the short term, though, some of President Biden’s actions with regard to international travel and COVID-19 will likely prove negative for Jamaica’s tourism, at a time when it is showing mild improvement.
BROADENING THE BASE
COVID-19 has emphasised the need for broadening the base of the Jamaican economy. This newspaper has argued that agriculture and agro-industries are critical to this transformation. In the short term, however, the economy, which has shed more than 130,000 jobs since the start of the pandemic, cannot be allowed to atrophy, throwing to the kerb the large swathes of the island’s population who already live in the margins.
We previously raised the possibility of another round of support for these vulnerable groups, notwithstanding the downward adjustments the Government is making to its Budget in the face of falling revenues and its wish to maintain its fiscal discipline. But given the latest developments, Minister Clarke needs to say how he intends to balance fiscal obligations, the potential for a slower-than-projected recovery of the economy and the well-being of those who are now without jobs and livelihoods.