ANALYSIS
1. FISCAL DATA:
For the first 7-months of the fiscal year, the Government of Jamaica's fiscal deficit stood at $22.4b, $5b worse than planned due to an $11b fall in revenues ($96b) relative to projections. The deficit represents $3b less than the corresponding period last year. However, the outturn was positively influenced by strong cutbacks on the expenditure ($119b) side, which partially countered the shortfall in revenue, and thus helped to mitigate the fiscal slippage. The result is that the overall deficit is falling, but is nowhere near the level consistent with making the balanced budget target, and the year-to-date primary surplus is actually lower than the same period of Fiscal Year 2004/05. The data is showing no signs of improvement.
2. REAL GDP GROWTH:
The Planning Institute of Jamaica (PIOJ) estimates third quarter real GDP growth at 2.7 per cent, better than the 1.5 per cent expected but still less than the original government forecasts of 3.5-4 per cent for the year. The main engine of growth appeared to be mining (bauxite/alumina). This sector is benefiting from higher investment/capacity and high prices. Tourism did poorly, estimated to have fallen 3.5 per cent year-over-year in the quarter.
Outlook - The PIOJ believes growth in the 4th quarter will be 2.9 per cent year-over-year. This would put growth for the year at about 1.5 per cent, well below where Jamaica has to be to get debt ratios on an improving trend. There is anecdotal evidence that the upcoming tourist season will be a good one, thanks in part to damage in Cancun, a direct competitor to Jamaica.
3. INFLATION:
Inflation for the month of November was 0.3 per cent, down from 0.6 per cent in October (and 2.6 per cent in September). This lends some legitimacy to the view that the September number was heavily influenced by transitory factors (transportation fare hikes etc.). Still, inflation is running at 13.5 per cent year-over-year, which is way above the government's target.
Outlook - Monthly inflation is difficult to predict, but gasolene prices have fallen in recent weeks, which could be good news. The challenge for the authorities is to ensure that the much-higher-than-expected inflation does not translate into wage pressures and cost-push inflation.
4. NET INTERNATIONAL RESERVES:
NIR (US$2.1b) fell by US$40 million in the month of October. We expected NIR to rise due to the government's US$250 million bond issue. Nevertheless, the BOJ has been spending reserves in order to maintain stability in the FX market. NIR remains at record levels representing just over 20 weeks of goods and services imports.
COMMENTARY
The positive spin on the above data is that they demonstrate that Jamaica has muddled through another hurricane season, slightly wounded, but still marching on, and that seasonal factors, namely the tourism season, should bring a more positive tone to the data in the coming months. Fiscal news, politics/crime, FX market and local interest rates are all areas of ongoing concern.
