Jamaica cautiously optimistic, but monitoring recession prediction
Minister of Finance and the Public Service Dr Nigel Clarke says that in the event that there is a significant downturn in the global economy that has a large enough effect on Jamaica, the fiscal responsibility laws will provide room for a policy response.
“But in the meantime, we are monitoring the situation very closely and keeping abreast of developments,” he said, in reference to concerns by a majority of United States business economists that some of President Donald Trump’s economic policies will result in a recession in that country by the end of 2021.
At the same time, Clarke said the worst may yet be averted with the appropriate response from the industrialized countries.
There is no doubt that there are concerns about declining economic activity in industrialised countries and that the risks of a recession are elevated, he said.
“We in Jamaica continue to monitor the situation quite closely,” Clarke said, while noting that industrialized countries are considering policy action that could yet avert a manifestation of those concerns.
Otherwise, at a public event on Thursday, Clarke also advised that the Jamaican Government was working to table legislation by April 2020 that would give effect to the proposed Fiscal Council as an “independent arbiter of Jamaica’s fiscal rules”. The remarks were made at the signing of a Memorandum of Understanding with the Economic Programme Oversight Committee, EPOC, on extending domestic monitoring of the country’s economic reform programme even after its arrangement comes to an end with the International Monetary Fund in November.
Speaking with the Financial Gleaner, Clarke said Jamaica has spent much of the last six years reforming the economy and as such the country’s capacity to absorb external shocks is greater than it has been for several decades.
“We have a high level of reserves at the central bank, the highest in our history. We have debt levels at 95 per cent of GDP and declining, the lowest in approximately 20 years, and we have a stable macroeconomic environment. So our ability to absorb shocks is better than it has ever been,” he said.
The Bank of Jamaica reported that net international reserves at the end of July was US$2.95 billion, which translates into an estimated 22.09 weeks of goods and services imports.
In addition, Clarke pointed out that the Government has taken action to stimulate activity by abolishing distortionary taxes and removing transaction taxes, while there has been significant monetary easing – the policy in which the central bank lowers interest rates to make credit more easily available – over the past two years, all of which have been designed to stimulate and catalyse economic activity.
“However, in the event that the worst fears in the global economy were to materialise and there was a significant downturn in the global economy that has a significant effect on Jamaica, our fiscal responsibility laws under such condition would provide room for a policy response,” the minister said.
“But in the meantime, we are monitoring the situation very closely and keeping abreast of developments. The worst may yet be averted with the appropriate response from the industrialized countries,” he added.
Among the response so far, according to reports earlier this week, is that the government of Germany is preparing to take action in providing fiscal stimulus – which can mean an increase in public spending or a reduction in the level of taxation – to support economic growth in the midst of mounting recession concerns.
The German economy has been facing slowing international demand for its industrial goods, such as tractors and heavy equipment, and demand for German cars have also recently declined.
Germany, the Eurozone’s largest economy, is facing a combination of slowing global growth, mounting uncertainty around the impact of Brexit – the withdrawal of the United Kingdom from the European Union – and friction stemming from the trade dispute between the United States and China.
Stocks in Latin American, the United States, Europe and most Southeast Asian markets rose at the start of the week as signs of stimulus for major economies lifted global sentiment, based on plans from Germany and China to counter slowing growth.
Concerns over a global recession were also eased by investors’ hopes that central banks around the world would unleash new stimulus to boost growth.