World economies suffering as a result of retarded US growth
The year 2002 has been a very difficult one in economic terms, coming after the September 11, 2001 tragic events in the USA. And as we approach the end of the year, the terrorist threats have heightened and continue to be a source of uncertainty that is retarding the pace of economic recovery in the world’s largest economy. The European economies have also been feeling the effects of the downturn in the US economy and the added pressures brought on by the slump in the world travel industry.
In the face of these difficulties and with the Japanese seeming unable to pull themselves out of the rut economically, it is not surprising that world trade is sluggish. This is particularly the case in the area of trade between the developed economies where there was negative growth in 2001 and the first half of 2002.
The impact of the slowdown in the world travel industry has been severe on countries like Jamaica that are heavily dependent on tourism. Data on passenger movements worldwide actually show that there has been an overall decline in the first half of 2002. However, the North American and Latin American and Caribbean regions have shown the largest rates of decline. This is not surprising given the fact that the air tragedies took place in the USA, which is the largest section of the world air travel system. Indeed, recent reports indicate that for domestic flights in the 200-1,000 miles range in the USA, there was a decline of over 20% in passenger movements for the first nine months of 2002.
Nearly all tourist destinations in the Caribbean have suffered a slump in business in 2002. Many have experienced double-digit rates of decline in visitor arrival having had growth rates at double digit levels prior to 2001. Included among them are Cuba and the Dominican Republic but Mexico has also been hard-hit, especially its Caribbean attractions. Barbados, the Bahamas and Jamaica have not been hurt as badly in terms of the rate of decline in tourist arrivals although earnings are down sharply because of the pressure on prices.
In our case, the projections are pointing to less than a 2% decline in stop-over arrivals for 2002 compared with 2001 which is much different from the 13% decline that had occurred in the January-April period. This was made possible by the positive growth in the July-August period and the subsequent improvements in the September-November figures from the disastrous levels of the immediate post-September 11 period in 2001. In fact, July and August registered increases of 4.2% and 4.9% respectively over the corresponding months of 2001 and increases of 0.7% and 1.9% compared with the same months of 2000. Thus the overall picture for 2002 is likely to be one of less than 2% decline over 2001 and around a 4% decline compared with 2000.
The consequences of these negative growth figures in visitor arrivals have been more significant in terms of the fall in foreign exchange earnings, the slippage in government revenues and the loss of jobs. Like in all other destinations the operators of hotels in Jamaica have had to heavily discount their rates. The same has been done by airlines worldwide and especially in North America and Europe as they try to boost traffic. In our case, the high level of crime and the recent extraordinary increase in the murder rate has added to the pressure on prices as we attract more negative publicity on the worldwide news circuit. It is therefore abundantly clear that the crime and violence situation must receive top priority if the tourist industry is to pick up momentum.
Our other major export industry, bauxite and alumina, has been recovering from the blow it took in the last quarter of 2001 when the JAMALCO alumina plant was shut. Starting from late first quarter when this plant reached full production, the output rate of alumina has improved steadily although maintenance problems at ALPART and industrial relations issues at WINDALCO have held back the pace of the recovery. Based on the January to October figures, it seems highly likely, however, that the previous record for alumina production will be surpassed in 2002 and that total bauxite production will be over 13 million tonnes, the highest level for many years.
As with the tourist industry, prices have been soft although they are better than at the same period in 2001. Aluminium prices to which bauxite and alumina prices are linked have been squeezed by the slump in the consumption of metal arising from the economic downturn in the USA, the largest market, and also by the weakness in the European and Japanese economies. A recovery in prices will be strictly dependent on the timing and depth of the *pick-up in overall world GDP growth and particularly in the level of industrial production of the major economies to which metal consumption is more directly linked.
In the meantime, only the most financially robust and cost-efficient producers are able to generate profits and even they are showing significantly reduced operating surpluses. The weaker players are under stress and have had to be disposing of assets and making strenuous efforts to survive. It is in these circumstances that Kaiser Aluminum has sought protection from its creditors in an attempt to restructure its operations. Several US airlines are in the same position and it could be sometime before they are able to work themselves out of their financial woes.
On a more positive note, the JAMALCO expansion is now well under way but it appears that this has been missed by those who report on economic issues. The project should be completed by the end of 2003 and contribute to a substantial reduction in operating cost, thus improving the competitiveness of the plant. If all goes well, this step could lay the basis for bigger things when the aluminiuim market returns to a strong growth path.