PIOJ considers COVID-19 effect on economy

PIOJ considers COVID-19 effect on economy

Business reporter

Wednesday, February 26, 2020

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The Planning Institute of Jamaica (PIOJ) has said that arising from the global threat of the novel coronavirus (COVID-19), they have factored the likelihood of its impact negatively affecting the economy — particularly through reduced export earnings and weakened production performance within several industries.

Dr Wayne Henry, while speaking at a media brief on yesterday, said that given the closeness of Jamaica/China relations, it is expected that any extended fallout in trade with China will carry adverse effects for the local economy.

“From an economic perspective the impact of COVID-19 would primarily be transmitted between two main mechanisms, namely trade and financial flows,” he said.

This he suggested will be primarily because of travel restrictions implemented to stem the spread of the coronavirus as well as the impact of the slowdown in the Chinese economy on global trade and investment flows.

He said that as it relates to trade, Jamaica imports heavily from China in the areas of intermediate, consumer and capital goods.

“Intermediate goods are inputs that are critical to the local production process in key industries, such as construction, in providing building supplies and raw materials for manufacture. Consumer goods include final produce such as clothing and appliances which drive activities in wholesale and retail trade. Jamaica also imports capital goods from China that are essential for industrial sectors such as manufacturing, mining and quarrying, and construction,” he said.

He further noted that on the reciprocal end at the export side, external demand from China is critical to the performance of the mining and quarrying industry as China is a major purchaser of Jamaica's crude bauxite and alumina.

In further commenting on the effects to financial flows, Henry highlighted that China has for many years been a major development partner of the country, giving significant loans, grants and foreign direct investments (FDI) to several key infrastructural projects, much of which will have major fallout given any slowdown in the Chinese economy.

He cited some US multimillion-dollar loan facilities: namely, the Jamaica Development Infrastructure Programme (JDIP), Major Infrastructure Development Programme (MIDP) and the Southern Coastal Highway Improvement Project (SCHIP) as some of the major ones to be most impacted.

“Given the significant economic ties between Jamaica and China, the possible impact of COVID-19 on Jamaica's economic performance would include weakened external demand due to a slowing in the Chinese economy and the associated downturn in global trade, weakened domestic demand associated with a possible slowing in new investment from China and the expected impact on output and employment levels, as well as the indirect impact on business and consumer confidence locally,” he said.

Henry, however indicated that while the downside impacts must be factored in, it must also be noted that these can be easily offset by positive impacts otherwise.

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