IMF maintains Jamaica growth forecast
Published:Friday | September 23, 2011 | 12:00 AM
Lavern Clarke, Business Editor
WASHINGTON, DC:
The International Monetary Fund (IMF) is maintaining its growth projections for Jamaica at 1.5 per cent this year but has moderated its 2012 outlook to 1.7 per cent amid expectations of a continued fall-off in output for the broader Latin America and Caribbean region or LAC.
Its medium-term assessment was more bullish, with expectation of 3.0 per cent growth by 2016, which would match growth levels last seen in 2006.
Jamaica is most dependent on the United States (US) and Europe as export markets, whose internal crises now threaten to derail the fragile global recovery.
Still, the IMF expects Jamaica's performance to remain steady notwithstanding the crisis being played out inside the Eurozone, the lack of political agreement in the US on how to fix its debt and fiscal problems, and internal uncertainty linked to the IMF rescue programme.
"After 13 consecutive quarters of contraction, economic growth in Jamaica resumed this year, with output expanding by about 1.5 per cent in the first semester," said Petya Koeva Brooks, chief of the World Economic Studies Division.
"While the recent slowdown in growth in the United States will create headwinds to Jamaican growth, the expansion in tourist arrivals, agricultural production, mining, and construction that have already taken place, as well as the expected reopening of an additional alumina plant, are expected to sustain the growth rate in the remainder of the year," Koeva commented to the Financial Gleaner.
On Tuesday, IMF economic counsellor, Olivier Blanchard, warned that the global recovery has become much more uncertain and the world economy has entered "a dangerous new phase" since the last assessment in April.
A failure by advanced countries to act speedily to spur growth, he said, could exacerbate what is now expected to be a 'continued but weak and bumpy' recovery.
The IMF, meantime, is stepping up pressure on Europe to move more quickly to ratify the rescue efforts agreed to in July, issuing what Blanchard said was "a call to arms" to policymakers; while urging EU leaders to "do whatever it takes" to maintain trust in national policies and the euro, and to strengthen the banks.
The IMF, however, rejected speculation that the crisis could lead to a break-up of the Eurozone, saying the EU bloc had sufficient policy tools to correct the problems.
The 34 advanced economies which account for 15 per cent of world output, will see a slowdown in growth to 1.6 per cent this year, the IMF said, and moderate expansion to 1.9 per cent next year. The 150 emerging and developing economies, meanwhile, are projected to grow output by 6.4 per cent this year, and 6.1 per cent in 2012.
The world's largest economy, the US, will perform at 1.5 per cent this year, according to the fund's forecasts, and only slightly better at 1.8 per cent next year.
The IMF, while batting for countries like the US to step up exports as demand shrinks inside their borders, is telling some of the emerging economies to do the opposite, ostensibly for the greater good.
"It is hard to see how ... domestic demand in the United States and other economies hit by the crisis can by itself ensure sufficient growth. Thus, exports from the United States and crisis-hit economies must increase, and by implication net exports from the rest of the world must decrease," Blanchard wrote in his preamble to the World Economic Outlook.
Shift reliance
Emerging economies, he added, Tuesday, in a briefing on the report, need to shift reliance from foreign trade to domestic demand. China has already indicated plans to rebalance its economy in that direction, he said.
"These plans cannot be implemented overnight, but they must be implemented as fast as possible. Only with this global rebalancing can we hope for stronger growth in advanced economies and by implication for the rest of the world," Blanchard wrote.
The World Bank, meantime, estimates Jamaica's growth in 2011 at a similar 1.5 per cent, but unlike the IMF, expects the economy to grow at a slower 1.2 per cent in 2012, according to data provided by chief economist for Latin America and the Caribbean, Augusto de la Torre.
The bank continues to see the Caribbean as being the most vulnerable section of the LAC region, notwithstanding signs of stronger ties with China. Torre told the Financial Gleaner that China's involvement in the region is not as deep as it appears and was limited to a few countries, including Trinidad.
"When you see the data, you still don't see significant trade," he said.
Torre says it is in the Caribbean's interest to develop deeper ties with South America as a source of trade and as a tourism market, in much the same way as the region is tied to US and Europe.
"There is a lot of unexploited connectivity with other giants in Latin America," he said, naming Brazil specifically. "A lot of emphasis has be to put beyond China," he said.
The IMF projects that the wider LAC region is likely to see a slowdown in growth to 3.9 per cent of GDP, relative to an expected 4.5 per cent outcome this year, and 4.0 per cent in 2012. Global growth is expected to remain flat at 4.0 per cent in the same periods.
Mature phase
Torre said at a midday press briefing on the performance of LAC economies and the impact of China on long-term growth, held at the World Bank, Tuesday that the big LAC economies were at the "mature phase" of their recovery after a successful decade that has narrowed income inequality in some of the countries while expanding the middle class.
Some of that growth, he said, was due to China, which increased trade with the region and whose demand for commodities helped to drive prices higher to the benefit of LAC exporters.
The World Bank's forecast for growth in LAC in 2011 and 2012 mirror that of the IMF.
Torre said, however, that the region's performance is tied to continued growth in China and expectations that commodity prices are unlikely to collapse. But he also warned that the Asian giant "is not a silver bullet" and should not be seen as a "rescuer" of regional economies but more as "an opportunity" to leverage trade.
Jamaica is projected faster than Trinidad's 1.3 per cent forecast this year. The top Caribbean performers, however, are expected to be Haiti, 8.6 per cent growth; Guyana 5.3 per cent; Suriname 5 per cent; and St Lucia 4.2 per cent.
The Caribbean region is projected to maintain growth levels of 3.3 per cent.