First quarter economic decline was expected — analysts
Following the announcement last week by the Statistical institute of Jamaica that the local economy had declined by 2.3 per cent in the first quarter of 2020, compared to the corresponding period last year, two noted financiers shared their views as to the reasons for the decline.
Analyst Dennis Chung says the decline was not unexpected while Keith Duncan, head of the Jamaica Money Market Brokers Group and also president of the Private Sector Organisation of Jamaica, agreed.
“The decline is no surprise for the following reasons:
1. If you look at the quarterly trend the economy was already declining and would have found it difficult not to decline from last year’s first quarter (even without COVID-19), as I think the economy has a ceiling it can reach because of structural issues (eg not dealing with labour market reform).
2. I don’t think the major COVID-19 effect would have been as a result of our March measures but from the global impact which started in January in our major market; for example, the United States. If you look at the decline in the tourism sector, a 14 per cent decline cannot be as a result of our actions from March,” Chung offered.
Turning to the performance of the various sectors of the economy, Chung said the closure of JISCO was already taking hold and “we can see that construction activities were declining as Government-funded work had slowed down”.
“The expansion in agriculture and manufacturing also showed that it wasn’t the local COVID-19 impact, and I expect these two sectors to fall-off in quarter two.
“In my view, quarter two will be significantly worse than quarter one. We should also see a fall-off in quarters three and four, but if we are successful in bringing back some life to tourism, then it may not be as bad as quarter two, which may be the worst. But that is if we can bring back economic activity. Another reason it may not be as bad is that the growth in quarters three and quarter four last year were already declining, so the comparison is against a lower base,” Chung said.
Chung then gave an analysis of quarters three and four.
“The main challenge to quarters three and four is that our major market (US) will see greater decline and continued COVID-19 impact and locally, unemployment will go up.
“The Government may try to stimulate some jobs at the lower end, like construction, but clerical jobs are where it will hurt the middle-class.
“A lot is going to depend on the strategies to restructure the economy and find new markets for export and how we deal with tourism, which also needs a shift of emphasis.
“Commercial real estate will also see reduced demand as more offices move to work from home and also seek to reduce operating costs,” Chung said.
The PSOJ president in his response said the decline in economic growth in the first quarter of this year was anticipated.
“We anticipated that we would have seen a turn down in growth for January through March 2020 as a result of the COVID-19 related slowdown in the economy due to the closure of the borders and the restrictions on economic activity.
“The Planning Institute of Jamaica has projected a further 12-14 per cent contraction in April through June 2020, but we are, however, hopeful that with the opening of the borders and further phased reopening of the economy that the rate of contraction should decrease for the balance of the fiscal year,” Duncan said.