Worrying signs of another slump
Published:Friday | September 30, 2011 | 12:00 AM
With gloomy sentiment dominating the outlook of consumers and businesses in the major industrial countries, investors are anticipating Europe's economy could shrink by one to two per cent next year, and that there could be stagnation in the United States (US).
Earlier this week, Mohamed El-Erian, the head of Pacific Investment Management Com-pany, the world's biggest bond fund, stated that: "For the next 12 months, the global economy will slow materially with advanced economies struggling to grow much above zero".
He also expects emerging economies to maintain faster growth, but not as high as in the last 12 months.
Since El-Erian's pronouncement, there have been some positive movements in Europe as the German parliament approved expansion of the euro-bailout fund on Thursday, marking an important step in the process to cauterising the financial crisis and what appeared to be the inevitable slide towards debt default by Greece.
Further, the US Commerce Department released an upwardly revised GDP growth figure for the second quarter, to 1.3 per cent, and the Labour Department reported new jobless claims for last week that were the lowest since April. Stock markets around the world recovered some losses on the basis of these developments.
The negative sentiment of recent weeks had pushed stock markets way down and reinforced the high volatility in commodity markets seen since the early months of 2011.
Oil prices, for example, went down, as the economies of major consuming countries showed signs of slowing down and forecasts of demand for oil were revised downwards. Prices for other major commodities including aluminium and copper also fell sharply as well.
Jamaican consumers are getting some relief from lower oil prices by way of reduced prices at the gasolene pump and should see some decrease in the fuel component of electricity bills. But the Jamaican economy has already been feeling the impact of the slowdown in the US and the heightened uncertainty in Europe, with the tourist industry experiencing a decline in total stopover visitor arrivals since May.
After growth of 5.1 per cent in the first four months of the year, the rate dropped to 2.2 per cent by the end of August.
Not surprisingly, Standard & Poor's, the international rating agency, is now projecting that tourist arrivals to the island will slump and drag down Jamaica's economic growth rate in 2012 and 2013. Detailed evidence of the downturn is revealed in the latest published report by the Jamaica Tourist Board for the month of May. The data show that there was a 2.1 per cent fall in total stopover visitor arrivals for that month, with all three major source markets - US, Europe and Canada - registering declines.
Declining tourist arrivals
The most significant outturn is that the number of American visitors fell by 1.5 per cent in the January-May period, which reflects the fact that arrivals from the US have been declining since March.
On top of that, stopover visitors from Europe also went down by 3.7 per cent and the number of Canadian tourists decreased as well. As preparations begin for the next winter season, we have to watch how economic conditions in the US and Europe evolve.
Conditions in the US economy are particularly important with respect to our other main source of foreign exchange inflows - remittances. Up to July, total inflows had increased by 6.4 per cent, a respectable outturn, but we have still not recovered to the pre-recession high in 2008.
The January-July 2011 figure stood at approximately US$1.16 billion versus US$1.19 billion - a shortfall of roughly US$30 million.
The US accounts for more than 60 per cent of remittance flows to Jamaica and, hence, the performance of that economy and especially its unemployment rate, is a major indicator of the pace of these flows.