EPOC cautious, cites various risks to the economy
Published:Thursday | April 14, 2022 | 12:08 AM
The Economic Programme Oversight Committee (EPOC) holds a cautious outlook on the Jamaican economy, because of external factors disrupting global trade and growth.
“There is so much risk, you couldn’t ask for a riskier time across the globe,” said EPOC Chairman Keith Duncan. “EPOC is very cautious on Jamaica’s growth path as risks remain high,” he said.
That said, EPOC believes that the Government’s 2022/23 budget projections are “credible and achievable”, albeit with risks to growth and revenue projections.
The group, which monitors the economy, is concerned about geopolitical tensions with the Russian invasion, global inflation, higher interest rates, supply-side disruptions and new variants of COVID-19.
“We have to be astute with agile management to work through this conundrum,” said Duncan, referring to actions by monetary and fiscal authorities.
Headline inflation is at 10.7 per cent as at February. Prices have been rising because of the continued effects on international commodity and shipping prices, which impact domestic transport-related and utility costs and processed food prices.
Core inflation, measured as the change in prices excluding agricultural commodities and fuels prices, was at 10.8 per cent in February, Duncan said, more than double the 3.5 per cent recorded at February 2021.
Around the globe, inflation in the United States is at 8.5 per cent; the United Kingston is at 7 per cent, a 30 year-high; and eurozone countries in Europe, at 7.5 per cent.
Domestically, EPOC expects the continued lifting of pandemic restrictions under the Disaster Risk Management Act to give added boost to the economy.
“This considerable easing will see the return of the entertainment industry and a return to some degree of normalcy which will definitely have a positive impact on the recovery of the economy,” Duncan said.
The Jamaican Government projects growth of 3.5 per cent this fiscal year, and expects the economy to return to pre-COVID levels by FY2024. The Bank of Jamaica’s Monetary Policy Committee expects growth with a range of two to four per cent this year.
The four interest rate hikes executed by the central bank since last year to rein in inflation, taking the policy rate to 4.5 per cent, are meant to incentivise saving in local currency compared to holding US dollars or investing in US instruments, said Duncan.
The rate hikes have led to a spike in Treasury yields, which this week jumped another two percentage points each, to 7.96 per cent for the 3-month T-bill and 8.46 per cent for the 6-month T-bill.
“The commercial banks will have to move rates at some point in time, and this is what the BOJ wants to see -- interest rates going up to slow demand and limit the ability of the business to pass on price increases to consumers,” Duncan said.