Economic Analysis - Gradual Recovery To Continue - JAN 2018


BMI View: Growth in Jamaica will gradually accelerate in the coming years , supported by remittances and tourism from the US and a n improving business environment . The Jamaican government ' s commitment to an IMF-stewarded reform programme will under an uptick in investment and productivity.

We maintain a positive outlook for the Jamaican economy, underpinned by the government's commitment to an IMF-stewarded reform programme and US-driven gains in tourism and remittance inflows. Accommodative monetary policy will also support credit growth and investment ( see ' Accommodative Policy To Remain Despite Inflation ' , September 22). However, we have modestly revised down our growth forecast for 2017 to 1.4%, from 1.7% previously, due to weakness in the agriculture sector. We forecast growth to average 2.0% over the next five years (2017-2021), compared to 0.6% over the past five.

Grow Acceleration Ahead
Jamaica - Real GDP Growth, %
f = BMI forecast. Source: BoJ, BMI

Agriculture Weakness Will Weigh On 2017 Growth

Our downward revision of growth in 2017 is the result of weakness in Jamaica's agriculture sector. Flooding in the first half of the year negatively impacted production of key agricultural goods, including sugar and bananas. Overall, real activity in the agriculture, forestry and fishing sector fell 4.5% y-o-y. Jamaica's economy remains vulnerable to weather-related shocks, an issue which the government is currently moving to address via the Agricultural Loan Societies and Approved Organizations Act, which passed the Senate in October. The bill increases access to financial and information resources for Jamaica's farmers to improve food security.

Jamaica To Benefit From US Economic Strength

Growth will also be supported by US economic strength, which will benefit Jamaica via increasing tourist arrivals and remittances. US economic expansion has supported an improving labour market, which has pushed real wages and disposable incomes higher ( see ' Investment Set To Pick Up ' , September 29). This has supported Jamaica's critical tourism sector, where the US is the primary origin of visitors. Tourist arrivals grew 4.3% y-o-y in H217, and we expect growth will continue into 2018, in line with our construction views on the US economy. Further, Jamaica's large emigrant community in the US has been able to send more money home. Remittance inflows totalled 752.3mn through April 2017, a 1.7% increase over the same period in 2016.

Remittances Inflows Will Benefit From US Economic Strength
Jamaica - Workers Remittance Inflows
Source: BoJ, BMI

Commitment To Reform Underpins Positive Outlook

Strong commitment by the government to fiscal consolidation and structural economic reforms under an IMF-stewarded programme will underpin gradual improvements in growth over the coming years ( see ' Commitment To Reform Agenda Underpins Improving Risk Profile ' , October 25). Reforms will focus on fiscal consolidation, including public wage bill reductions, reducing the role of the government in the economy, strengthening the procurement process, improving confidence in the financial sector, and inflation-targeting monetary policy. These measures will bolster investment and gradually improve productivity.