BY KEITH COLLISTER
Friday, October 10, 2014
IN its October Emerging Markets Outlook and Strategy dated last Friday, on the eve of the International Monetary Fund’s (IMF’s) annual global summit in Washington, leading US investment bank JP Morgan stated that Jamaica‘s “Prospects shine brighter”.
The bank’s reasons include the lifting of Jamaica‘s outlook to positive from stable by rating agency Standard and Poor’s, better tourism numbers from Europe and Canada, and healthy gains
in remittances.
The rating improvement, JP Morgan said, reflects improved external liquidity, a return to positive GDP growth, and success in meeting the fiscal targets, with “the elevated deficit being virtually eliminated”.
JP Morgan noted the trade deficit narrowed by 6.5 per cent to US$1.78 billion in January to May from US$1.91 billion a year earlier. Despite a 13.9 per cent plunge in exports to US$616 million, this was more than offset by an 8.5 per cent decline in imports to US$2.4 billion.
The investment bank said it expects the trade deficit to fall to US$4.4 billion for the full year 2014 compared to US$4.66 billion in 2013.
It also noted that stopover tourist arrivals rose 2.4 per cent to 1.3 million in January to July from 1.27 million a year earlier, primarily due to surges in visitors from Europe and Canada, much better than last year when the numbers had only “inched up”, as JP Morgan put it, by 1.1 per cent to 2.01 million.
Now, the bank has forecast stopover arrivals to climb 2.7 per cent to 2.06 million in calendar year 2014.
Remittances climbed 3.8 per cent to US $887 million in January to May from US$854 million one year earlier, compared with a 1.1 per cent rise to US$2.07 billion in 2013. The bank now expects remittances to grow four per cent in 2014 to US$2.15 billion, or roughly 15 per cent of GDP, driven by the key US source market.
Noting the surge in net international reserves in July to US$2.18 billion following the Eurobond issue, despite upcoming debt repayments such as the Eurobond due in October, JP Morgan still forecast net international reserves to improve by US$452 million to US$1.5 billion by the end of 2014, from US$1.05 billion in 2013.
In short, JP Morgan’s more positive outlook reflects the improvement in international confidence in Jamaica due to the bank’s recognition of our improved US dollar flows, including a reduction in the trade deficit, better performance in tourism, and more significant growth in remittances.
While not mentioned in its note, there has also been an apparent recovery in foreign direct investment from recent lows, particularly in tourism, and international players would also undoubtedly have taken note of the recent stability of the Jamaican dollar.
Indeed, at the latest Economic Programme Oversight Committee (EPOC) press briefing, co -chair Richard Byles suggested that tourism performance in the traditionally weak September appeared robust, adding that, very unusually, the exchange rate had appreciated slightly in a month when it is normally seasonally weak.
Answering his own question as to why this was the case, Byles suggested that the exchange rate no longer looked like a “one-way bet”, and he believed a lot of people had recently got out of US dollars, deflating what had become an exchange rate “bubble”, as people were now confident that the Bank of Jamaica “has the ability to defend the [Jamaican] dollar”.
However, he cautioned that the improvement in local sentiment was “not so
much” about the overall
IMF programme, where confidence remained very spotty.
The improvement in remittance flows was also seen in the Jamaica Chamber of Commerce (JCC) Business and Consumer confidence indices released Wednesday, where despite a three-point reduction in consumer confidence, largely on the back of distress at the reduction in expected job prospects and less favourable expected changes in income, consumers counterintuitively reported a better quality of life, according to JCC pollster Don Anderson.
Some of this appears to reflect an improvement in the size and frequency of remittances, which continues to “cushion” consumers. This view is supported by the record numbers of Jamaicans reporting that they spend all their remittances, especially on utility costs, according to the JCC report.
The rise in remittances for Jamaica projected by JP Morgan is in line with regional and global trends, as a recently released World Bank report says remittances to the region are expected to reach US$64 billion, an increase of five per cent this year, compared to one per cent last year, with a further rise to US$67 billion in 2015.
The JCC report also reported a clear divergence between confidence in the tourist areas, which appeared to be improving, and Kingston, which was declining, no doubt reflecting the growth of the tourist industry.
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Jamaica"s prospects shine brighter, says JP Morgan
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