#COVID19Chronicles-155: September 14, 2020: Economic pain

I’m not going to characterize economic outcomes during the pandemic as if they’re unexpectedly awful: the bottom has fallen out of the world economy and we’re part of that. Our pain has different sources and remedies and that’s what’s important to understand. Simply put, we’re highly dependent on other countries, especially the USA.

Data for the 2nd calendar quarter and 1st fiscal quarter, April-June, and now available: they show the economy contracted by 18% compared to the same period in 2019:

No sector has escaped. In services, hotels and restaurants have been brutalized—declining 88%—while in production sectors, mining and quarrying declined 25%. The sharp decline in tourism explained the former as the sector limps along at about 10-20% capacity. Alpart closing affecting mining badly, and limitations on movement badly affected ‘other services’ and ‘transport etc’.

Tourism has borne the local economic brunt of the pandemic but played its part in suppressing the health impact. Sector spokesmen stress how tourism has tried hard to respect health protocols. But, they fear being made scapegoats to justify another closure of our borders.

Obviously tourism is especially fragile now.

Some perverse positive trends: remittances are up: The BOJ governor commented in a published statement, “Incredibly, while the global forecast is for remittances to decrease by 20 per cent in 2020, remittances to Jamaica have increased since May, evidenced by a 15.7 per cent increase in May and a 41.6 per cent increase in June, after a very small decline in the first quarter.”

Despite the tired howls that the sky is falling almost every time the exchange depreciates, the FX market is showing the resilience and behaviour it should with a flexible exchange rate. The J$:US$ rate touched 151 over a week ago and was trading at about 143 last Friday. Again, BOJ governer Byles: “It must also be noted that the newly reformed FX market continues to operate in the way that an FX market is supposed to work. The exchange rate is supposed to act like an elastic band that contracts and expands automatically, to transparently reflect the state of the market and the overall economy.”

There’s no shortage of FX: “An even clearer picture was painted on Tuesday, September 1, 2020, when the Bank of Jamaica intervened in the market, offering US$20 million via a B-FXITT (Foreign Exchange Intevention and Trading Tool) flash sale. For the first time since the start of 2020, the market did not ask for more than what was being offered. The market did not even ask for half of it. BOJ received bids for only US$7.8 million, or 39 per cent, of what was offered. This is an emphatic and unequivocal indication that the FX market is presently adequately funded and in no need of extra funds.”

However, the sharp contraction of the quarter reported ought to be much more than the next quarter, as the economy opened up again from mid-June, albeit with many operations and workers not at full tilt. The surge in positive cases that has led to the official change of status to ‘community transmission’ may bring with it greater irregularity of activities, as firms and organizations deal with identified cases and some shut down temporarily to clean and sanitize. Tougher enforcement of health protocols may also push some businesses past their tolerances and business will fall, eg for public transport due to enforced lower ridership.

So, we might have touched the bottom of the downturn, but that will not be clear till next quarter. Either way, the road to recovery will be long, whether it’s not until early 2021/22 or later.

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