Economic Analysis - Economic Reforms Underpin Positive Growth Outlook - APR 2018

BMI View: Tourism will support growth acceleration in Jamaica in 2018, following a muted 2017 due to agricultural sector weakness. Economic reforms and a gradual loosening of austerity measures will support higher growth rates over the long-term.

  • Tourism and mining activity will support an acceleration in growth in 2018. We forecast real GDP growth to rise to 1.4% y-o-y in 2018, from an estimated 0.6% in 2017.
  • Over the long term, recently enacted economic reforms and a gradual easing of austerity measures will begin to lift investment and growth.
  • Weather-induced agricultural production declines weighed heavily on growth in 2017, and volatility in the sector will remain a risk in the coming years.

Weak agricultural production weighed heavily on growth in 2017, and we now estimate real GDP growth came in at 0.6%, from 1.4% previously. A weather-induced downturn saw production in the sector contract by 4.7% through Q317. The agricultural sector has been the primary contributor to growth in recent years, and the sector's vulnerability to weather-related shocks exposes headline growth to significant volatility. The government is moving to address this exposure by investing in rural infrastructure, roads and irrigation in an effort to limit the impact of future flooding or drought, but it likely will be several years before these efforts begin to bear fruit.

Agricultural Sector A Key Growth Driver
Jamaica - Economic Activity, % y-o-y
Source: BoJ, BMI

Tourism and remittances will spur a growth acceleration in 2018. The US is by far the largest source of tourists to Jamaica, with US visitors reaching 1.28mn through November 2017, 62.5% of the total and a 9.4% y-o-y rise. We expect this surge will continue into 2018, as US growth accelerates to 2.7%, from 2.1% in 2017 ( see 'Investment Surge Heralds Strong 2018 Growth', January 9). US economic strength will support rising real wages and disposable income, which will enable more vacations by US citizens. We also expect rising real wages in the US will support an increase in remittances sent home by Jamaica's large emigrant community, supporting private consumption growth on the island.

US Driving Tourism Surge
Jamaica - Tourist Arrivals
Source: BoJ, BMI

Production gains in the extractive sector will also support growth, as the Alpart alumina and bauxite facility restarts production. The site will boost Jamaica's metals exports significantly in 2018, supporting the country's net export dynamics. The new owners, Jiuquan Iron & Steel (JISCO), plan to invest USD2.0bn in refinery upgrades, which will support further aluminum export gains in the coming years.

Economic reforms and an easing of austerity measures underpin our positive long-term outlook. We expect IMF-sponsored economic reforms put in place over recent years, including reducing the role of the government in the economy, strengthening the procurement process, and financial regulations, will begin to bear fruit ( see 'Broad Consensus To Support Political Stability', February 1). Improving financial stability and inflation-targeting policies by the Bank of Jamaica will support increased credit growth and investment, while an improving fiscal situation will enable a gradual rollback of austerity measures, interest payment reductions and an uptick in public spending. As a result, we expect real growth to gradually accelerate from 1.4% in 2018 to 2.1% in 2020.