Sat | Jun 25, 2022

PIOJ cuts growth forecast but says no recession in sight

Published:Friday | June 3, 2022 | 12:08 AM

The Planning Institute of Jamaica, PIOJ, expects the Jamaican economy to continue expanding, but it has also cut the forecast for growth this fiscal year, citing global events.

Instead of growth within a range of three to six per cent, the agency now projects that gross domestic product will expand by two to five per cent.

“We are not seeing recession now, but the risks are certainly in the environment,” PIOJ Director General Dr Wayne Henry said, in response to a query at his quarterly press briefing on Wednesday.

The risks outlined include new variants of COVID-19, weak demand from trading partners, the war between Russia and Ukraine, and the global supply disruptions to trade.

“There are elements of risk and uncertainty, but we are not seeing a recession, so we share the view of the IMF and the Bank of Jamaica. The risks are evident but we are not seeing, in terms of projections, a recession. We are still projected to grow for this fiscal year,” Henry said.

An economy is deemed to be in recession after two consecutive quarters of contraction. The reduction usually comes with reduced income for businesses as well as pay cuts and job losses.

The downward revision in growth for the fiscal year ending March 2023 takes into consideration “the high degree of uncertainty surrounding unfolding global developments, including the impact of geopolitical developments associated with the Russia-Ukraine war,” Henry said.

Last week, BOJ Governor Richard Byles said labour statistics and economic growth show no signs of a recession, amid continuing criticism of the central bank for its continuing interest rate hikes that are meant to cool inflation.

The BOJ has reset its policy interest rate six times since last September, moving it from 0.5 per cent to 5.0 per cent as of May 19. Within that period, the unemployment rate fell to a record 6.2 per cent.

Henry, on Wednesday, downplayed fears of a recessionary impact from rising interest rates, saying the ongoing economic recovery was sufficient to overpower the negative effects.

“The recovery momentum, with industries returning to capacity – particularly in tourism and entertainment – we see that the recovery momentum has been very strong. So as interest rates increase, we have not seen a drag on growth,” he said.

In the March quarter, the Jamaican economy grew 6.0 per cent, according to PIOJ’s preliminary estimate, led by activity in the services sector. The final pronouncement on growth will come later from the Statistical Institute of Jamaica

The current quarter, April-June, which was beset by worker protests, is expected to grow by two to four per cent, by PIOJ’s reckoning. “This projection is supported by the further relaxation of COVID-19-containment measures,” said the PIOJ head.

The full fallout from the different industrial action taken by air traffic controllers and National Water Commission workers in May is still being tabulated, but so far the PIOJ is reporting a $240-million loss in water revenue for the NWC. Henry noted that the labour disruptions negatively affected output, the extent of which was still being assessed.

“Any additional challenges in the labour market would serve to negate gains. I encourage government, employers and the unions representing workers in both the public and private sectors, to approach labour disputes in a way [that’s] rewarding to both workers and employers, and not cause harm to the development process,” he said.

In the March quarter, services grew 8.9 per cent on the back of increased tourism activity, while the goods-producing industry expanded by just 2.1 per cent, constrained by the mining sector, which continues to suffer the effects of reduced output at the Jamalco alumina refinery since a fire there in August 2021.