Barita Insights: Weekly Newsletter October 12, 2020

Analyst Insights

As Jamaica enters the final quarter of the 2020 calendar year, there have been many insightful lessons that have been engraved within our society. The global pandemic caused by COVID-19 has brought to light many underlying components of our economy that now, on a going-forward basis, we would need to address to operate in the “New Normal”. Examining crucial economic data points during this 2020 period will allow us to establish critical working theses about our evolving economy and what is necessary to essentially build back.

Starting with GDP, Jamaica’s Q2 outturn was a contraction of 18.4% relative to the previous year. This is a result of declines in both the Services Industries (20.3%) and the Goods Producing Industries (12.7%). These outturns is primarily a result of the negative impact of COVID-19 and the necessary measures required to curtail the spread. Other factors that contributed to the decline in the economy were drought conditions which primarily affected the Agriculture, Forestry & Fishing industry and the continued negative impact of the closure of the JISCO Alpart on the Mining & Quarrying industry. In the Services Industries, the Hotels and Restaurants Industry saw the largest decline of 85.6%, which by far is the largest decline by any single industry. This decline was due to the closure of the island’s air and seaports to incoming passengers to limit the risk of imported COVID-19 cases, and this saw a 99.1% decline in foreign national arrivals.

Also, Jamaica’s imports for January to June 2020 were valued at US$2.30 billion, 29.7% lower than the same period last year. During this period, Jamaica saw export revenues of US$607.1 million, 31.2% lower than the corresponding period. Of particular interest is with regards to our major trading partner the USA, import value declined by 44.0% to US$870.6 million, while earnings from exports fell by 7.7% to US292.3 million over the same period. There was a 13.0% decline in Consumer goods, a 24% decline in Raw Materials/Intermediate Goods, and a 53.6% decline in Fuels and Lubricants.

As at September 30, Jamaica had a Net International Reserve (NIR) of US$2.74 billion, US$11.9 million less relative to the August 31st NIR level. Also, during the January to July period, Jamaica saw overall net remittances of US$274.7 million, an increase of 43.8% relative to the corresponding period. The largest source market for remittances in July was the USA at 67.0% relative to 64.8% in July 2019. Another interesting data point is that during this period, Jamaica’s growth in net remittances of 13.4% was higher than Mexico with registered 11.4% while Guatemala and El Salvador saw declines of 1.4% and 4.6% respectively

With this information, essential takeaways can be learnt from this period:

  • Our Economy Is More Integrated Than We Think: The closure of our hotels and restaurants significantly weighed on the performance of our overall economy, not because of direct contribution but because of the integration of industries. Given the lower demand by these sectors, there were lower production levels by our manufacturers and distributions, heightened counterparty risk in the loan portfolios of our financial sector.
  • Jamaica’s Diaspora Remain an Important Cornerstone of Our Economy: In a period where there has been an increase in unemployment levels globally, Jamaica’s remittances have shown significant resilience despite this fact. With Jamaica losing out on its primary USD inflow source through tourism, remittances had acted as a much-needed backstop, along with Jamaica’s historically high levels of NIR.
  • Domestic Confidence is Tied to Economic Backdrop: The lower levels of imports by businesses and consumers showcase that persons are prioritizing their spending to maintain liquidity as both job security and consumer spending remain areas of concern. Improvements in these areas will be underpinned by the improvement in the overall economic environment both globally and domestically for Jamaica.

The foray of information during the general “Lockdown Period”, the height of curtailment measures of the COVID-19 pandemic, has allowed us to develop our Hindsight of Jamaica’s handling of the virus, the weaknesses in our economic infrastructure and critical areas for development in the future. In Part II, we will discuss our Foresight and potential investment strategies to be deployed during the new economic environment.

.

Written by Haughton Richards, FRM, FMVA, Senior Research Analyst

Conclusions

Our Economy Is More Integrated Than We Think

Our Economy Is More Integrated Than We Think: The closure of our hotels and restaurants significantly weighed on the performance of our overall economy, not because of direct contribution but because of the integration of industries. Given the lower demand by these sectors, there were lower production levels by our manufacturers and distributions, heightened counterparty risk in the loan portfolios of our financial sector

Jamaica’s Diaspora Remain An Important Cornerstone of Our Economy

Jamaica’s Diaspora Remain An Important Cornerstone of Our Economy: In a period where there has been increase in unemployment levels globally, Jamaica’s remittances has show significant resilience despite this fact. With Jamaica losing out on it’s major USD inflow source through tourism, remittances had acted as a much needed backstop, along with Jamaica’s historical high levels of NIR.

Domestic Confidence is Tied to Economic Backdrop

Domestic Confidence is Tied to Economic Backdrop: The lower levels of imports by businesses and consumers showcases that persons are prioritizing their spending to maintain liquidity as both job security and consumer spending remain areas of concern. Improvements in there areas will be underpinned by the improvement in the overall economic environment both globally and domestically for Jamaica.

There is good news for the foreign exchange market...

There is good news for the foreign exchange market as the Bank of Jamaica (BOJ) is reporting that net remittance inflows for July 2020 is up 43.8 per cent to US$274.7 million.

Keep Reading...

Let's Make Your Money Work For You