Daily Monitoring of Effects of Global Financial Crisis – Hughes

Director General of the Planning Institute of Jamaica (PIOJ), Dr. Wesley Hughes, has said that while Jamaica is faced with a number of macro-economic risks, in the context of the current global financial crisis, vulnerabilities to external shocks are being carefully monitored on a daily basis.
He said reports are being made to the major decision-makers and action is being taken, as “the present situation is a very complex and difficult one, and it is a situation which is being given the most serious consideration required”.
Dr. Hughes was speaking on Monday (Nov. 17), at the PIOJ’s quarterly press briefing at the agency’s Oxford Road offices. He explained that “the US economy is on the brink of reporting a recession with a decline in Gross Domestic Product (GDP) of 3 per cent during the current quarter likely to happen. Based on preliminary data, the countries of the Euro zone are already in recession with contraction in output of .2 per cent and .1 per cent in the April to June quarter, and the July to September quarter of 2008, respectively”.
He said the weakening global economy, resulting in a downturn in demand, has seen the index of commodity prices reflecting a decline of 2.8 per cent in the sub-indices for energy, and a five per cent decline in the sub-indices for non-energy commodities during the July to September quarter.
“These developments in the global economy have adversely impacted the growth performance of the Jamaican economy, primarily through reduced external demand of goods and services, reflected in reduced access to external financing, and the slowing of FDI (Foreign Direct Investment),” the PIOJ head outlined.
Globally he pointed out, investors have either been avoiding investment or shifting their funds from some developing economies to perceived stronger economies in the developing world, many of whose Governments have already guaranteed deposits in those countries.
Responding to a query concerning the “lag” in the effect of the US situation on the Jamaican economy, Dr. Hughes explained that, “both the Jamaican economy and the global economy are being transformed overtime, and many of the coefficients that we have in our models may be dated, so we don’t have a precise figure to say that it may be three months, six more or nine months (before Jamaica is affected). What we do know is that depending on the length, breadth or depth of the decline in US economic activities, we are likely to see some impact on Jamaica”.
Continuing, he noted, “Of course, there are special characteristics that you have to keep focus on, not just the technical data. For example, the issue of remittances – Latin American and Central American economies have seen a very dramatic decline in remittance flows almost immediately”. This, is said, is partly due to the fact that a lot of remittances to these countries come from construction workers, farm-workers, and relatively low-paid labourers.
“Jamaica on the other hand, we have a much higher value human capital that we have exported over the years (such as) in the financial services sector, the health sector, the teaching sector, and so it has taken a longer time for that downturn to impact those sectors,” the Director General explained.
He cited for example, that the per capita remittance flow into Jamaica is approximately US$700 per annum, while in Latin America, this figure is just over US$100, which indicates a qualitative difference in the earning levels and the remittance flows. “Therefore, you have to be very careful in making this one-to-one connection that if there is a downturn (in the US economy), there will be a remittance downturn in Jamaica immediately”.
However, he cautioned, “we can’t be of the view that we are going to be completely insulated. It’s just that the adjustment period may be a little longer and.we will see either a slowing of the rate of growth, or flat performance, hopefully at best, if we are lucky, depending on how low the recession (and) how deep it goes”.