Thursday 21 November, 2019

'Jamaica more resilient to withstand shocks of a global recession'

Concerns of a global recession intensified last Wednesday in the midst of an ongoing trade war between China and the United States, the world’s two largest economies.

Concerns of a global recession intensified last Wednesday in the midst of an ongoing trade war between China and the United States, the world’s two largest economies.

Some of the country’s leading financial analysts and private sector leaders have expressed that Jamaica is in a much better position in 2019 to withstand the effects of a recession, more so than it did during the so-called ‘Great Recession’ of 2007/2008.

Financial analyst and President of Money Masters Limited, Claudette Crooks, is one of them.

“There are some differences in my opinion between 2007 and now. I think the central banks globally, and I hope domestically as well, are far more responsive and the economy responds to whatever stimulus they may put in …So we are seeing more responsive central banks,” Crooks said during an interview with Loop Business.

“As it relates to Jamaica, it’s something (the likely recession) of which we have to be cognisant because we are a dependent economy,” Crooks noted.

Crooks

But, she said recent growth in Jamaica, which is largely attributed to changes in the country’s economic framework, “makes us a little more resilient now than in 2007 when the country was very dependent on the global economy.”

“We are still very dependent but there are activities happening on the domestic front that have made the environment far more resilient than then.”

Crooks stressed that in 2007 Jamaica had much higher interest rates and other negatives.

“Inflation was also a factor that we had to be struggling with, we had relatively high inflation; growth conditions are different now so as an economy we are a little bit more resilient.

“So it’s a close watch from our side as Jamaicans as to what’s happening on the global front, expecting that it will, and could have an impact on the domestic side but the positive is that we are a bit more resilient now than in 2007,” Crooks emphasised.

Concerns of a global recession intensified last Wednesday in the midst of an ongoing trade war between China and the United States, the world’s two largest economies.

There has been a months-long tit-for-tat that has seen both countries impose increasingly higher tariffs on each other’s imports with the resulting higher prices for goods passed on to consumers. The current state of affairs was triggered by United States President Donald Trump.

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But there was also concern of a coming recession based on the inverted yield curve where short-term rates are higher than long-term 10-year treasury.

“That’s one of the factors that the economists are looking at and saying that happened in 2007 so we could be seeing a recurrence,” Crooks explained.

She was quick to point out that “In terms of the world economy, the numbers don’t start showing any sign of a recession as it usually takes three quarters of negative growth.”

We are not seeing that historically. What persons are anticipating is that there could be a recession coming based on the inverted yield curve,” said Crooks.

Meanwhile, well known financial analyst, Dennis Chung and Private Sector Organisation of Jamaica (PSOJ) President, Howard Mitchell, are also optimistic that Jamaica would weather the storm if there were to be another global recession.

Chung told Loop Business on Friday that should there be another global recession, Jamaica’s number one foreign exchange earner, tourism, could be impacted, especially since a significant majority of visitors to Jamaica are Americans.

Chung

“If there’s a recession in the United States that’s the first place it normally hits us. We could be faced with a situation where we don’t have the kind of uptake of visitors over the medium term as people who may start earning less may put off their trips,” Chung reasoned.

He noted that in the short-term, persons who had already made plans to travel may go ahead with those trips. But, Chung pointed out that there could be a time lag similar to the 2007/2008 global recession, the effects of which were not felt in the local industry until around 2009/2010.

“If we are moving towards recession, people are going to move towards the safe haven asset which is really US dollar government bonds,” Chung told Loop News.

“This means the US dollar might get stronger as a currency if people demand more US dollars to put their money into. That would mean that relative to the Jamaican dollar, the US dollar could actually get a little stronger. If that happens “we could see a more accelerated depreciation of the Jamaican dollar in that context,” Chung explained.

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And the noted financial analyst said a global recession could also have a negative effect on Jamaican companies that have increasingly moved into the global market space.

He said the effect would not necessarily be felt in the immediate short-term. However, he warned that those companies, especially those in the food business that are earning money overseas in those markets, could see a slight setback, especially on discretionary items.

Additionally, Chung said there could be a slowdown of small and medium-sized businesses accessing overseas markets.

“Those are some of the things that could happen but I don’t see any short-term, immediate effect on Jamaica because there is still a lot of activity that’s going to happen in Jamaica; the construction work that’s taking place for example is going to continue for a while so it means that people will still have money to spend,” said Chung.

He also argued that “There are a lot of inefficiencies in the Jamaican system that, if we were to ensure that we remove a lot of those inefficiencies, then we can actually withstand some of the global trends that’s taking place by ensuring that we have greater labour productivity.

“It may also mean we will have to change some of our laws and that sort of thing…there are things that we can do to withstand a recession.”

For his part, Mitchell, the PSOJ President, said there were some concerns among private sector interests as some of the indicators “appear to be pointing towards at least a North American recession, and possibly a global recession”.

Mitchell

“We are not in a position to really accurately start talking about timing and magnitude or depths of the recession but it is clear that the economic indicators are turning down,” the PSOJ boss said.

He stated that this would have consequences for Jamaica.

Mitchell said discussions are now taking place among private sector interests, with more talks set for this week.

Despite any concerns, Mitchell has confidence that the improvements in the economy in recent years would allow it to absorb any shock caused by a recession.

“We have improved our fiscal structure and the management of our fiscal structure so that the shock of a global recession, although it is not desirable, we, at this point in time, anticipate that we would be in a better position to weather a global recession than we were in 2007/2008,” Mitchell said.

 

 

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