The Jamaican economy, which has been undergoing a sustained period of growth for the past couple of years, is now showing signs of weakness because of COVID-19 with latest estimates showing a contraction in the range of 1.5 per cent to 2.5 per cent for the March 2020 quarter.
This is well below the 0.0 per cent recorded for the December 2019 quarter and the previous projection for growth of 0.3 per cent. The Bank of Jamaica (BOJ) in its Quarterly Monetary Report for May estimated that the decline for the March quarter occurred in the context of the adverse impact of the novel coronavirus on the economy and measures implemented to contain its spread.
The report, which was released on Thursday, showed reductions in the economy were chiefly reflected in hotels & restaurants, mining & quarrying, construction, and other services.
As for manufacture, agriculture, forestry & fishing and transport, storage & communication and to a lesser extent wholesale & retail trade, these industries recorded lower than previously projected growth.
VALUE ADDED FOR HOTELS AND RESTAURANTS DECLINED
In the context of the decline in economic activity for the March 2020 quarter, the BOJ estimated that a negative output gap for the quarter was larger than the gaps in the December 2019 and March 2019 quarters. There was an expansion in the December 2019 quarter, while value added for hotels & restaurants is estimated to have declined in the March 2020 quarter.
This reduction, the BOJ quarterly monetary report explained, “is premised on an estimated decline of 11.5 per cent in foreign national arrivals as well as a fall in the average length of stay. The reduction in foreign national arrivals largely reflected the adverse impact of the novel coronavirus on travel, which led to the closure of air and seaports in the island.”
The report added that there were travel advisories in major source markets which led to the cancellation of bookings, contributing to the closure of several major hotels. “Following a reduction in the December 2019 quarter, value added for mining & quarrying is estimated to have declined significantly for the March 2020 quarter,” the report noted.
BAUXITE QUALITY AFFECTED OUTPUT
The estimated reduction for the review quarter reflected declines in both alumina and bauxite production. According to the BOJ, “alumina production was affected by operational challenges at the Jamalco plant, largely as a result of the poor quality of bauxite available, which resulted in a lower level of capacity utilisation during the quarter. The decline in bauxite production and exports was due to low demand in the quarter.”
Construction is estimated to have declined for the review quarter. This performance was largely driven by a reduction in civil works under the Government’s Major Infrastructure Development Programme as major works on the Southern Coastal Highway, which were expected to start in the quarter, are now expected to start in three months.
The National Housing Trust finance & insurance services is estimated to have increased for the March 2020 quarter. This expansion largely reflected growth in all sub-industries, particularly commercial banking services.
This growth was underpinned by continued credit expansion in the quarter. The estimated expansion in value added for agriculture, forestry & fishing largely reflected growth in domestic crop production as traditional export crops is estimated to have declined.
With regard to domestic crops, the increase is largely predicated on growth in root crops and vegetables. In contrast, animal farming is estimated to have declined given an estimated reduction in broiler production. For traditional export crops, the contraction largely reflects declines in banana and cocoa production.
This impact is expected to be partly offset by higher production of sugar cane and coffee. Food, beverages & tobacco is estimated to have grown consequent on an increase in food and beverages production.
Growth in other manufacturing is associated mainly with increased production of refined petroleum during the quarter. This is anticipated to be partly offset by a decline in cement production.
Electricity & water supply is estimated to have increased in the review quarter. This growth reflected expansions in both electricity consumption (proxied by total electricity sales) and water consumption during the period. The increase in water production and hence consumption during the period may be associated with an improvement in the dry conditions relative to a year ago, which prevailed in the previous quarter.
Given the above changes, non-tradable industries are estimated to have expanded for the review quarter while the tradable sector is estimated to have contracted. The decline in the tradable sector was mainly attributed to mining & quarrying and hotels & restaurants while growth in the non-tradable sector was chiefly associated with finance & insurance services.