Jamaica-Japan trade connection
Published:Friday | March 18, 2011 | 12:00 AM
BOJ forecasts bigger oil bill; Statin says too early to predict full effect on economy
Sabrina Gordon, Business Reporter
Japan is one of Jamaica's top 10 trading partners, and while overseers of the local economy expect some fallout from the still unfolding disaster in the rich Asian powerhouse, they say it is too early to estimate what the full impact will be.
Still, the central bank has already forecast that Jamaica's fuel bill could rise by as much as US$30 million (J$2.58b), but otherwise it is optimistic that performance targets will not veer off course.
Jamaica's fuel bill at the end of December 2010 stood at US$1.4 billion, representing a 10 per cent increase over 2009 when oil imports cost US$1.27 billion, according to Statistical Institute of Jamaica's (STATIN) data.
The Bank of Jamaica (BOJ) based its estimate on the outcome of a similar event in 1995, citing a three per cent rise in oil prices then.
"In terms of the impact on the balance of payments, crude oil prices fell initially given news that a refinery had caught fire and power had been disrupted," said the Bank of Jamaica in emailed responses to Financial Gleaner queries.
"Over the longer term, global commodity prices, such as oil, may, however, rise in the context of Japanese acquisition of materials to be used in the rebuilding process, as well as to replace lost nuclear capacity."
Following the 1995 Kobe earthquake, oil prices rose on a sustained basis by approximately three per cent, said the central bank.
"In this context, the average projected crude oil price for fiscal year 2011-12 could rise by approximately US$1.44/barrel, relative to the baseline forecast."
However, the bank was quick to add that the forecast for growth, balance of payments and inflation is not expected to be adversely impacted to any significant degree.
The central bank's target for inflation in the March quarter is 1-2 per cent, and 7.5 to 9.5 per cent for the fiscal year.
While some marginal growth is also anticipated for the fourth quarter, GDP is expected to contract by up to 1.0 per cent.
Trade with Japan over the last couple of years has fluctuated. But at the end of 2009, Jamaica imported goods valued at US$118.5 million from that country, of which motor vehicles accounted for approximately 84.2 per cent.
Among others, which forms a minority of the imported items from Japan to the island are some beverages such as ordinary natural waters and non-sparkling wine.
A small quantity of crude materials, mineral fuels and lubricants, as well as chemicals and other related materials, are also incorporated in the imports.
For that same period, January to December 2009, exports totalled US$30.3 million, with coffee representing the bulk of it, at 95 per cent.
Data up to the end of November 2010 reflects an increase in imports as exports fell - increasing the country's balance of trade with Japan to US$105 million.
During the 11 months, imports of motor vehicles from Japan increased 85.9 per cent, while coffee exports fell to 91.3 per cent.
But as to how these figures are expected to move in light of Japan's devastation, the data collection agent was unable to say.
"It's too early to tell," said Lorna Reid, director of administrative statistics at Statin. "Trade will be impacted, but as to the levels, we can't say."
On March 11, Japan was hit by a massive 9.0-magnitude earthquake shutting down factories car manufacturers and oil refineries.
"The impact of the disaster on the local economy may be felt in terms of the impact on transportation; lower car imports and export earnings," said the BOJ.
The bank also alluded to some threats to the international financial market, but as Jamaica has no near-term need for international financing, the bank said there is no concerns in that respect.
"The net impact of these events may mean an increase in sovereign risk premia, which may adversely affect financing costs for sovereigns seeking access to international financial markets. Jamaica, however, has no near-term international-financing needs," the central bank said.
"Beyond the near-term cessation of trade caused by the disruptions at the major Japanese ports, and the hiatus in production from disrupted energy supplies, there is likely to be little long-term effects on this trade between the two countries."