Is the economy growing faster than the official data suggest?

Wednesday, November 13, 2019

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During the last 50 years Jamaica has experienced low or fluctuating economic growth. Indeed, in several years the economy contracted, stubbornly refusing to budge from its malaise, despite a variety of shock treatments.

Thanks to incredible economic policy discipline in recent years of successive governments both of the People's National Party and the Jamaica Labour Party the economic ship is beginning to turn.

Full credit goes to former finance ministers Dr Peter Phillips and Mr Audley Shaw, as well as current Finance Minister Dr Nigel Clarke, and, above all, the forbearance of the Jamaican people, especially the poor and public sector workers, who have tolerated years of severe austerity.

As we seek to consolidate the macroeconomic turnaround we are experiencing, going forward there are several considerations to be made.

First, is it possible that the economy is growing much more or faster than the official figures indicate? We know that the compilation of the gross domestic product (GDP) does not capture some informal business activity. Could it be that people are not as a badly off as the figures tend to indicate because they are surviving on income not included in the GDP figures?

Second, if the economy is only growing at one per cent, then how can the increasing wealth of the rich be explained? If the economic pie is only one per cent bigger, then the increasing wealth and income of the rich must be in forms which are not captured in the statistical data. Could some of this be accounted for by corruption, tax avoidance, or profits earned but not brought back into Jamaica?

Third, how can an economy with the fastest-growing stock exchange in the world be based on growth of one per cent? A booming stock exchange means that investment is taking place in the stocks listed and that there is confidence that there is profit to be made in buying and selling stocks.

However, we have not seen the faster economic growth implied in the growth in these companies' profitability and revenues. Part of the reason is that some of the largest drivers of economic growth are not represented on the stock market, for example, tourism, construction, and bauxite/alumina.

Some of the big firms are foreign-owned, for example, China Harbour Engineering Company. Others are large government-owned enterprises, such as The Port Authority and Urban Development Corporation.

Fourth, as certified by the International Monetary Fund, Jamaica's macroeconomic fundamentals have not only improved but they are now sound. Budget deficit has been reduced, debt-to-GDP has been reduced, and inflation is at record lows.

Macroeconomic stabilisation has been accomplished, but how then is the exchange rate steadily depreciating? It does suggest that those who are speculating in foreign exchange do not regard the economy as stabilised.

These paradoxes of economic statistics need to be addressed in future compilation of our GDP.


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