Economy to grow 1-2% this year - BOJ

By Julian Richardson

Friday, May 20, 2011

The Bank of Jamaica (BOJ) is projecting the Jamaican economy to grow this fiscal year by one to two per cent amid an improving global economic outlook, ongoing Government infrastructure investment programmes and continued improvements in the fiscal accounts.

Expansions in agriculture, mining & quarrying and hotels & restaurants are expected to drive the growth during the fiscal year, in which domestic inflation is projected to be in the range of six to eight per cent.

"The Jamaican economy has started to show concrete signs of recovery," said BOJ Governor Brian Wynter yesterday at the BOJ's quarterly press briefing at the central bank's offices in downtown Kingston.

"Interest rates are at historically low levels, the foreign exchange market has continued to be stable and the outlook for inflation is favourable. These developments augur well for sustained growth and development," he noted.

Wynter's projections came against the background of the March 2011 quarter in which the economy was estimated to have grown by close to one per cent, catalysed by expansion in mining & quarrying and hotels & restaurants. This was favourable relative to the fact that the economy has experienced an average decline of 1.2 per cent over the prior four quarters.

Inflation for the March quarter was 0.5 per cent, below the forecasted range of one to two per cent. The favourable out-turn was attributed to significantly sharper than expected reduction in prices of domestic agricultural produce due to recovery in supplies following Tropical Storm Nicole, weak domestic demand and continued stability in the foreign exchange market where there was a marginal appreciation of 0.1 per cent in the exchange rate. Inflation for fiscal year 2010/2011 was 7.8 per cent while the value of the Jamaican dollar appreciated by 4.4 per cent against its US counterpart.

"The stability (of the exchange rate) in the review quarter was underpinned by continued net private capital inflows and a reduction in net outflows associated with current account transactions," said Wynter.

The Net International Reserves were US$2.5 billion at the end of the March quarter, US$801.3 million above the stock at the end of the corresponding period last year. Wynter said the level of reserves is likely to fall this quarter because of the payout of the maturing GOJ global bond in May.

Going forward in fiscal year 2011/2012, the central bank said the downside risks to the economic growth forecast include lower than expected domestic demand as a result of reduced incomes, adverse weather conditions and higher than expected increase in worl oil prices. The primary upside risk is a greater than anticipated impact of the Government's infrastructure investment project.