The Bank of Jamaica (BOJ) is highlighting what it sees as emerging signs of economic recovery. 

BOJ Governor Richard Byles said that there is much hope for the country given these emerging signs of economic recovery.

Addressing the bank’s quarterly news briefig yesterday, Byles stressed that, “we are beginning to see signs of incremental improvement in economic activity, buoyant flows in the foreign exchange market, a sustainable balance of payments position, adequate reserves and inflation contained within the four to six per cent corridor.”

According to the BOJ Governor, “the economy is beginning to show signs of recovery, even though the future remains clouded with much uncertainty. The most recent real GDP outturn published by STATIN indicated that domestic economic activity contracted by 10.7 per cent for the September 2020 quarter. This is an improvement relative to the June 2020 quarter, which saw a significant contraction of 18.4 per cent.”

Continuing, Byles made the point that “another way to view this improvement is to consider the quarter over quarter change in de-seasonalised real GDP, again as reported by STATIN. Using this measure, the economy declined by 15.3 per cent in the June 2020 quarter relative to the previous quarter but grew by 8.3 per cent for the September quarter when compared with the June 2020 quarter”. 

Improvements in the labour market 

The same pattern of improvement, Byles reported, is evident in the labour market. He cited the latest data released by STATIN indicating an unemployment rate of 10.7 per cent at October 2020, an improvement relative to the 12.6 per cent recorded at July 2020, but still up from 7.2 per cent recorded a year earlier. 

When account is taken of the seasonal patterns in employment, these statistics suggest that more than 40,000 jobs were restored in the December quarter, following the COVID 19-related loss of close to 80,000 jobs in the September quarter. 

Loan growth remain resilient

He reported that loan growth has remained fairly resilient, with the stock of private sector loans and advances recording year-on-year growth of 11.5 per cent at November 2020 compared to growth of 16.5 per cent at February 2020. Although the pace of growth in loans has moderated, it remains above what we had expected in the context of the sharp fallout in economic activity. 

This has been bolstered by continued demand for loans by businesses for working capital needs.

Turning to the financial system on a whole, the BOJ Governor admitted that while the domestic financial system has also been impacted by the pandemic, it continues to remain resilient and sound.

This is shown in the fact that the balance sheet of deposit-taking institutions’ (DTIs) shows that they are well capitalised and in compliance with prudent liquidity standards. Loan quality for the system, while naturally showing a small deterioration, remains well below threshold.

However, the BOJ is keeping a watchful eye on the resolution of a substantial block of loans on moratorium. 

Ensuring adequate funding in the banking system

In the meantime, the BOJ continues to take steps to ensure that the financial system remains adequately funded. To this extent, Byles makes reference to the commitment of financial holding companies (FHCs) and DTIs to make only limited dividend distributions in May 2020 in an effort to encourage the preservation of DTIs capital in light of the pandemic.

In December 2020, this understanding was further strengthened with the DTIs agreeing not to declare or pay any dividend over the next two quarters until June 2021.

FHCs may declare dividends, but the payment will be limited to shareholders owning one per cent or less of the outstanding shares in the FHC.

Byles reported that “the contraction in the Jamaican economy is past its worst and the outlook is for continued, albeit more gradual improvements in economic activity. Notwithstanding this improvement, the Bank continues to project that, for the full 2020-21 fiscal year, real GDP will contract in the range 10 per cent to 12 per cent”.

Projection for economic rebound

The BOJ’s latest projection is for a partial rebound of at least four per cent in economic activity to commence in FY2021-22, and could possibly be as high as eight per cent if there is a strong recovery in tourism. This projected growth in FY2021-22 represents a first step in getting the economy back to levels of economic activity observed prior to the COVID-19 pandemic, possibly in FY2022-23.  

Developments in the Foreign Exchange Market

Overall, inflows into the foreign exchange market have remained healthy. Between March 2020 and January 2021, daily purchases of US dollars by authorised dealers and cambios from end users averaged US$31.2 million, slightly lower than the average of US$33.4 million recorded last year. 

Similarly, daily sales to end users averaged US$27.7 million over March 2020 to January 2021, slightly lower than the average of US$29.0 million a year earlier.

According to Byles, “where we identify temporary shortfalls in the market, we have intervened. Total B-FXITT flash sale operations since the onset of the crisis in March 2020 has amounted to US$381.0 million to date.  The Bank has been judicious in its management of the country’s reserves.”

He indicated that “Jamaica’s net international reserves remain healthy, amounting to just under US$3.0 billion, and we believe these reserves will be quite adequate to see us through this crisis”.

Looking forward, over the next two years, the BOJ projects that the current account deficit will remain at sustainable levels of about two to four per cent of GDP.