Economy could grow 5% in fiscal 2022, says BOJ
Published:Sunday | June 7, 2020 | 12:19 AM
The Bank of Jamaica (BOJ)is projecting that the Jamaican economy could grow by as much as 5.5 per cent in fiscal 2022 after a year of five per cent contraction.
It is a growth rate not seen by the country in recent history, but the central bank says the size of the expansion is determined by the contracted base from which Jamaica is projected to rise.
The BOJ’s forecast is for growth within a range of 2.5 per cent to 5.5 per cent. The average of that is 4 per cent, which tracks with the 3.9 per cent growth projected by the International Monetary Fund for Jamaica in fiscal year 2021-22.
“The projected growth rate does not mean that the economy is buoyant since even with this growth, the economy will not return in one year to the size that obtained prior to COVID,” said BOJ Deputy Governor, Research and Economic Programming and Financial Stability, Dr Wayne Robinson.
He said that in essence, the projected higher-than-usual growth for FY 2022 is because of the low level of gross domestic product that will obtain in this year, FY 2021.
“To illustrate, assume that the size of an economy in FY2019-20 was $10 billion, which arose from average growth of 1.0 per cent per year. The economy then suffers a decline such that the size of the economy shrinks to $9.5 billion in FY2020-21,” explained Robinson.
“In FY2021-22, conditions begin to normalise, and the size of the economy moves to $9.8 billion. The economy will suddenly grow by 3.0 per cent, compared to the previous average of 1.0 per cent, but the size of the economy will remain below the original $10 billion,” he said.
“So if we consider the tourism sector, for example, Bank of Jamaica’s projections envisage that with the gradual reopening of the economy, tourists will resume travel to Jamaica in the December 2020 quarter and that the number of visitors to the island will gradually improve,” he told the Financial Gleaner.
When compared with the number of visitors to Jamaica this fiscal year, the projected stream of visitors the following year will result in a significant growth rate even though total tourist arrivals will be less than that which occurred before the onset of COVID-19, the central banker noted.
A similar phenomenon will be observed in the other sectors of the economy, he said, noting that in the past when Jamaica had an adverse shock to agriculture in one year, the following year, when conditions normalise, usually records a large growth in that sector.
“In summary, our baseline projection envisages only a gradual economic recovery as it will take time for business processes to adjust to the new norms and for confidence to fully recover,” Robinson said.
However, because of the low base this year, arising from the sharp fallout in the economy, that gradual recovery will translate to higher-than-usual growth next year.
“Note that there are upside and downside risks to our baseline projection,” he cautioned.
Jamaica’s economic growth has largely tracked at one per cent to per cent in past decades, but there were at least two outliers. STATIN data indicate growth of 3.7 per cent in 2003 and 2.9 per cent in 2006.
In May, BOJ Governor Richard Byles said that the bank projects that the Jamaican economy will contract in the range 4 to 7 per cent for fiscal year 2020-21 due to measures taken to contain the coronavirus and that they are anticipating a recovery of 2.5 to 5.5 per cent in fiscal year 2021-22 as Jamaica and economies around the world reopen.
The projected contraction, which BOJ averaged at 5.1 per cent, for this year is broad-based but will be mainly reflected in hotels and restaurants, mining, wholesale and retail, transport, storage, and communication and other services, Byles said.
The Jamaican economy began reopening on June 1. The tourism sector will reopen on June 15.