Correction & Clarification
The headline titled ‘BOJ reports fifth month of economic contraction’ on Page 8 of the Financial Gleaner of August 23, 2013, should have read ‘BOJ reports fifth quarter of economic contraction’.
McPherse Thompson, Assistant Editor - Business
The Jamaican economy is estimated to have contracted in the April to June quarter, although at a slower rate than the 1.3 per cent recorded for the previous review period, the Bank of Jamaica (BOJ) reported on Wednesday.
At the same time, the BOJ said it was encouraged by headline inflation which was 1.2 per cent for the quarter, better than the forecast range of two to three per cent and below the March quarter outrun of 2.7 per cent.
Central bank Governor Brian Wynter declined to say the rate at which the economy was estimated to have contracted.
However, it was the fifth consecutive quarter of negative growth, indicating that the Jamaican economy continues to be in recession, with little expectation of growth beyond 0.5 per cent for the remainder of fiscal year 2013-14.
"The contraction reflected the impact of drought conditions, continued weak domestic demand as well as the slow recovery of the global economy, which contributed to lower remittance inflows and low demand for Jamaica's goods and services," Wynter said at his quarterly press briefing at Nethersole Place in Kingston.
The main industries estimated to have recorded declines were agriculture, forestry and fishing, hotels and restaurants, and electricity and water supplies, the BOJ said.
However, the bank is projecting that real sector activities will improve in the remaining quarters of this fiscal year.
Wynter said that forecast largely reflects an expected recovery relative to the out-turn for the corresponding period of fiscal 2013 when economic performance was negatively affected by Hurricane Sandy, which was followed by drought and a high level of investor uncertainty related to perceived delays in concluding an agreement with the International Monetary Fund.
real gdp growth
Consequently, the projection for real GDP growth is predicated on improved investor confidence, continued expansion in the global economy and more robust growth in credit to the private sector, said the central bank governor.
Against that background, Wynter said real GDP growth for the September 2013 quarter and fiscal year 2014 is projected to be in the range of zero to one per cent.
"The risks to the forecast are assessed to be on the downside and relate to weaker-than-expected external and domestic demand," he said.
Wynter reported that the inflation out-turn for the June quarter was largely attributable to pass-through of the depreciation of the Jamaican dollar, which fell 2.5 per cent against the US dollar, following a six per cent decline in the March quarter. The inflation out-turn was also due to the impact of drought conditions on the prices of agriculture items.
"However, the impact of these factors was lower than the bank had anticipated," the governor said. "The lower-than-projected inflation also reflected the impact of a sharp reduction in energy costs - which was not expected - and the effect of weaker-than-anticipated demand conditions," he added.
The BOJ is projecting inflation to be in the range of two to three per cent for the September quarter, driven by upward movements in the prices of domestic agricultural produce and processed foods.
It is also expected to reflect the impact of higher oil prices and the effect of seasonal increase in demand related to the summer holidays and back-to-school preparations. Headline inflation for July, the first month of the September quarter, was 0.5 per cent.
Wynter said that despite the significantly lower-than-expected inflation for the first four months of the current fiscal year, the BOJ was maintaining the fiscal inflation forecast at 8.5 per cent to 10.5 per cent.
Domestic prices are expected to reflect the impact of higher international commodity prices, especially crude oil, and the pass-through of the depreciation in the exchange rate. In addition, seasonal increases in the prices of domestic agricultural produce are expected to contribute to inflation for the period.
The governor said that although the muting effect may continue, a continuous assessment of the near-term risks suggests that inflation may end up close to the upper bound of the forecast range for the quarter and fiscal year.
Those risks largely relate to the administrative adjustments to transportation costs announced this week by Transport and Works Minister Dr Omar Davies, and possibly adjustments to utility costs, the BOJ said.