‘Global recession on the horizon’ - PROVEN Wealth’s CEO blames US/China trade war, Brexit for impending financial slump

WESTERN BUREAU:

Johann Heaven, president and chief executive officer (CEO) of PROVEN Wealth, is warning that a global financial recession is on the horizon for the fiscal year 2020-2021, and he believes it could negatively impact Jamaica’s stock market and push up interest rates.

According to Heaven, who was addressing his company’s Cheers to Your Wealth engagement in Montego Bay last Thursday, the escalating trade war between the United States and China, the world’s two largest economies, and the uncertainty surrounding Brexit, among other global issues, informed his opinion.

“We are in a very open society and dependent on our trading partners, so in the event of a recession, our tourism, which now accounts for nine per cent of our gross domestic product (GDP), would be a first point of impact,” said Heaven, who noted that while Jamaica is in a much better position than it was 10 years ago during the last recession, the country’s economy is still not immune to external shocks, such as those likely to result from a global recession.

“Second, remittances will always get hit when the US falls into a recession. We are already under pressure with bauxite prices at all-time lows and the closure of JISCO-Alpart plant will have a further drag on our GDP,” continued Heaven, who also pointed out that high GDP growth has remained elusive.

“Foreign direct investment will also be impacted; and given a fall-off in tourism and remittances, there could be added pressure on the exchange rate,” Heaven added.

The PROVEN Wealth president and CEO also cited the International Monetary Fund (IMF) revised global GDP projection, where the projection was lowered from 3.5 to 3.3 per cent, the lowest projected level since the crisis in 2009, as another indicator.

Heaven further surmised that the Jamaica Stock Exchange, which is at an all-time high, could also be impacted by a global slowdown, along with interest rates. However, he said it’s not all doom and gloom, as, during the 2007-2008 global recession, Jamaica’s economic situation was quite different, with the aspiring fiscal deficit, unsustainable debt levels, rising interest rates, plummeting global bonds prices, negative economic growth, and poor ratings.

“Since then, we have had two debt exchanges, our interest costs have been reduced considerably, maturity on our bonds have been extended, there have been two successful IMF programmes, and the Government of Jamaica has been very proactive with their liability management,” noted Heaven.

He said that added buffer should result from the country’s improved macro stability and GDP growth over the last 18 quarters, upgraded credit ratings by the main rating agencies, better regulated financial entities, still-moderate consumer spending, stable real estate prices, and financial entities that are much better capitalised and able to withstand any pressure.