Economic contraction lowered in September quarter

The Bank of Jamaica (BOJ) is projecting that labour market conditions in the country will worsen over the next eight quarters.

In this regard, the average unemployment rate over the December 2020 to September 2022 quarters is projected to increase within the range of 13.0 per cent to 15.0 per cent, relative to the 9.0 per cent over the past year. In its Quarterly Monetary Policy report for November, which was released on Thursday, the BOJ said the worsening unemployment condition is predicated on the adverse impact of the novel coronavirus.

The BOJ reported that the employed labour force is projected to decline (year over year) at an average rate of 0.5 per cent per quarter, even while the labour force is projected to decline. The anticipated increase in unemployment, particularly over the next four quarters is greater than the previous projections made by the BOJ.

UNEMPLOYMENT CONCENTRATED IN FIVE INDUSTRIES

According to the BOJ’s quarterly monetary policy report, “the expected increase in unemployment is anticipated mainly in tourism, construction, transport and wholesale & retail industries”.

The unemployment rate at July 2020 increased to 12.6 per cent.

This is 4.8 percentage points above the rate recorded as at July 2019. The increase in the unemployment rate reflected a decline of 10.8 per cent (135,800) in the employed labour force.

The increase in the unemployment rate occurred in the context of a reduction of 6.0 per cent (81,200) in the labour force. The number of unemployed persons increased by 51.2 per cent, while the labour force participation rate fell by 4.0 point to 61.3 per cent.

ECONOMIC CONTRACTION

The Jamaican economy is estimated to have contracted in the range of 10.0 to 13.0 per cent for the September 2020 quarter, a slower pace of contraction compared to the 18.4 per cent decline recorded for the June 2020 quarter. However, this contraction is much greater relative to the previous projection, which was for a reduction of 8.0 per cent.

The estimated decline for the quarter occurred in the context of the continued adverse impact of the novel coronavirus on the economy and measures implemented to contain its spread. Consequently, only Government Services and Agriculture, Forestry & Fishing are estimated to have grown.

The contractions in the economy were chiefly reflected in Hotels & Restaurants, Other Services, Mining & Quarrying Wholesale & Retail and Construction. This is worse than the previously projected declines for the review quarter in the areas of Construction, Wholesale & Retail Trade, Electricity & Water, Manufacture and Finance & Insurance.

In contrast, a slower pace of decline for Hotel & Restaurants as well as higher growth in Agriculture, Forestry & Fishing are estimated.

DOWNWARD REVISION IN CONSTRUCTION

The downward revision to construction was due to reductions in all sub-industries, particularly for building construction and civil engineering, the latter reflecting lower spending on road rehabilitation works. Manufacture is estimated to have declined faster due to reductions in both food production and petroleum refining.

The stronger decline in Wholesale & Retail Trade is predicated on the estimated performance of the manufacturing and construction sectors. With regard to Electricity, larger declines are now estimated on the basis of available data.

The downward revision to Finance & Insurance Services reflected trends in recent outturns, due to significant declines in fees and service charges, possibly related to increased on-line banking and a reduction in premiums for insurance services. In the context of the decline for the June 2020 quarter, the BOJ estimated a more negative output gap for the quarter relative to the previous projection.

This estimated output gap was also smaller than the gap in June 2020 but larger than the gap in the September 2019 quarter.