The strength of 0.2% - Services GDP breaks downward spiral, economy grows 1.5%
Published:Friday | August 26, 2011 | 12:00 AM
AT THE best of times, a 0.2 per cent spike is marginal enough to be labelled as flat. But this week, it was yet another sign of a broken economy slowly on the mend.
"This represented the first quarterly growth for the services industry since October-December 2007," said director general of the Planning Institute of Jamaica, Dr Gladstone Hutchinson, on Wednesday as he presented the latest quarterly report card on the real economy for the April-June 2011 period.
Services is the star in Jamaica's J$1.2 trillion consumption-driven and tourism-dependent economy and, prior to the recession, was the centre of economic expansion.
By Hutchinson's estimate, services gross domestic product (GDP) would have been in contraction for 13 quarters before breaking the trend with the June period's 0.2 per cent uptick. Nonetheless, the services sector still accounts for a commanding 81.5 per cent of economic activity, down marginally from 81.7 per cent in 2009, but up more than two points from 79.1 per cent in 2007.
Goods-producing activity grew 5.3 per cent in the current review quarter, pushing growth for the overall economy to 1.5 per cent in the April-June 2011 period. This is the second quarter of consecutive growth greater than one per cent, and a more positive sign that the recession has been broken.
"The country has begun to realise benefits from green shoots arising from fundamental reform of systems, procedures and processes aimed at mitigating and building economic and infrastructure resilience against shocks, vulnerabilities and other global developments," said Hutchinson.
The goods-producing economy was driven by rapid recovery in mining and quarrying, up by 30.8 per cent, and was further buffered by a nine per cent spike in agriculture, and more muted growth in construction and manufacturing of 1.5 per cent and 0.7 per cent, respectively.
Inside the services groupings, hotels and restaurants recorded the largest expansion, 2.5 per cent, followed by finance-insurance and wholesale-retail trade, both of which increased by 0.5 per cent.
Tourism arrivals were up 9.7 per cent in the quarter across the stopover and cruise markets, while visitor spend increased by 3.4 per cent to US$488.4 million.
Real value added for finance and insurance services resulted from increased activities at building societies, loans and advances at commercial banks, and a rise of 6.7 per cent in
remittances to US$507.7 million; whereas retail activity spiked on increased consumer demand and an uptick in automated banking and point-of-sales transactions.
The gains in services were muted by a 1.2 per cent decline in transport-storage-communication GDP, while electricity-water contracted 0.9 per cent.
Looking ahead, Hutchinson was cautiously optimistic about continued growth in the coming periods, which, he said, was hinged on external factors. Nonetheless, the economist said the growth trajectory was still pointed north "albeit at a slower rate than previously projected", due to likely adverse effects from the debt crisis in Europe and the delayed effects of the downgrade of the United States' creditworthiness, as well as expected budget cuts to be announced at month-end.
These factors, he said, could potentially cut 0.3 percentage point from projected growth.
James Stewart, acting director of the economic planning and research division at the PIOJ, says export-dependent sectors could feel most of the effects.
"We anticipate that the downgrade could affect the mining and quarrying industry, as well as tourism and transport. For mining and quarrying, we expect that the downturn in demand could possibly lead to a delay in the opening of the Kirkvine plant. This, we feel, could detract 0.2 percentage point from overall GDP going forward," said Stewart.
"With respect to tourism, possibly, the United States being our largest supply market, we see where this could possibly detract another 0.1 percentage from growth projections," he said.
GDP growth across the first six months of 2011 was also estimated at 1.5 per cent.
PIOJ is projecting growth of 0.5 per cent to 1.5 per cent in the September quarter.
Hutchinson said factors such as the seven per cent public-sector wage settlement and two lump-sum payments amounting to J$4.5 billion, by the end of December, could boost aggregate demand and stimulate economic performance.