The Bank of Jamaica (BOJ) issues a new guidance for the country yesterday, August 26, which predicted higher levels of decline than previously thought. It was a prediction that analysts at JMMB Group agreed with, citing the absence of a COVID-19 vaccine as the reason for the worsening forecas
The JMMB Group said that estimates of decline so far have been “overly optimistic” in the management discussion attached to its annual report issued yesterday.
Referencing previous government and International Monetary Fund (IMF) calculations, the analysts stated, “The IMF noted in its outlook on the global economy, amid the coronavirus pandemic, that conditions are likely to start normalising by the second half of the year.
“This view in our opinion is overly optimistic in light of how the situation on the ground is evolving in Europe and North America.”
They pointed out that the number of daily COVID-19 related deaths, although declining, is falling at a slow rate in the United States and parts of Europe.
“It is likely that the domestic economy could contract at a faster rate than expected by the authority.– JMMB analysts
“In the absence of a vaccine, “the JMMB analysts said, “we expect second, if not third and fourth waves where persons are infected with the coronavirus. Most recently the Chinese authorities had to close down townships close to the Russian border due to a new wave of infections, which were believed to be imported.”
All of this, the analysts said, “is a stark reminder of the risk that governments contend with when they open up their economies.”
Management stated that considering the challenges facing the global economy, they expect inflows from tourism and remittance for Jamaica to remain subdued for the rest of the year.
“This will negatively affect operations across all sectors, including agriculture, retail and distribution, and manufacturing. Steep cuts in capital expenditure by the government will have a sharp negative effect on the construction industry. It is likely that the domestic economy could contract at a faster rate than expected by the authority,” it was stated.
Management reiterated that with the source market for tourism and remittance facing serious economic challenges, lower flows from these channels of foreign exchange are expected in coming months.
They stated also that lower foreign direct investment flows are envisaged over the next year, at least, as the investment climate is less accommodating.
On the opposite side, they added, the demand for external goods and services is expected to decline due to falling household and business income.
This is likely to be reinforced by subdued oil prices and lower volumes of capital market transaction by financial institutions.
The JMMB analysts said that on a net flow basis, it is likely that demand for foreign currency will outstrip supply resulting in depreciation of the Jamaica dollar.
A possible improvement in tourism and remittance flows could reduce depreciatory pressure on the Jamaica dollar and catalyse the return of the periodic month-over-month up and down shift in its value, they outlined.
Referencing the IMF approved a loan to Jamaica amounting to US$520 million under the Rapid Financing Instrument (RFI), it was noted that the funds are not for budget support and therefore will not be used for this purpose.
The analysts stated, “Although the Bank of Jamaica (BOJ) is armed with additional resources as part of its toolkit to combat anomaly in the foreign exchange market, we do not foresee the Bank deploying it unless conditions deteriorate rapidly.”
It was noted that with the policy rate as low as it is (0.50 per cent per annum), there is limited room for further cuts; therefore, it is likely that the BOJ will utilise less orthodox means, if required, to steer domestic economic activities.
Management said that for JMMB Group, the focus for the new financial year will be on driving core revenue growth and pushing to maintain or take market share across all markets in existing business lines and expanding inorganically across the region.