JAMAICA’S economy is now expected to take up to four years to recover from Hurricane Melissa, longer than previously forecast, as the Bank of Jamaica (BOJ) acknowledged lasting damage to growth and productive capacity in minutes released from its December policy meeting.

The revised outlook marks a shift from earlier expectations of a two- to three-year recovery and reflects mounting evidence that the October storm inflicted more than a temporary disruption to economic activity. Policymakers said the hurricane had reduced the economy’s potential output, signalling longer-lasting damage to capital, labour and productivity.

In its December deliberations, the central bank said the recovery was now expected to stretch over three to four years, compared with the two- to three-year period “initially anticipated”, according to the minutes. Staff also projected “a fallout [lower] in potential GDP over the near term due to Hurricane Melissa,” reflecting the storm’s adverse impact on domestic factors of production.

“Hurricane Melissa has lowered Jamaica’s potential output, not just its short-term growth,” the committee concluded.

Tourism, Jamaica’s largest foreign exchange earner, is expected to recover more slowly than previously anticipated, as damaged hotels reopen later than planned. The minutes noted that “full recovery of room stock remains at the December 2026 quarter,” with weaker tourist demand expected until then. Policymakers also flagged “significant downside risks to the domestic labour market,” citing layoffs announced by several hotels following the hurricane.

Agriculture has suffered prolonged supply disruptions, pushing food prices higher and constraining domestic output well beyond the immediate aftermath of the storm. Over the December 2026 to September 2027 period, domestic crop production is expected to grow “at a slower pace”, indicating “a more protracted recovery relative to the previous forecast”, the minutes said.

Construction, which typically supports post-disaster recoveries, is also rebounding more slowly. The central bank said the outlook for the sector was “predicated on a more protracted reconstruction period,” driven by persistent financing, distribution and supply challenges.

Together, these developments prompted the central bank to revise down both near-term growth projections and estimates of potential GDP, signalling that the storm’s impact will weigh on the economy for several years.

Despite the weaker growth outlook, the BOJ opted to hold its benchmark interest rate at 5.75 per cent at the December meeting, prioritising inflation control and foreign exchange stability over short-term stimulus. The committee unanimously agreed to “hold the policy rate at 5.75 per cent per annum” and to “remain proactive in preserving relative stability in the foreign exchange market”.

Inflation, policymakers argued, poses the greater risk. Headline inflation is projected to “persist above the target range” through much of 2026, breaching the upper limit of the BOJ’s 4-6 per cent target in early 2026 and remaining elevated until early 2027. The outlook reflects “increased agricultural inflation,” “second-round impact on prices of other goods and services”, and “expansionary fiscal policy”, the minutes said.

Core inflation is projected to accelerate to an average of 5.9 per cent over the near term, driven largely by “elevated inflation expectations and the second-round impact of the hurricane on services-related inflation”.

The inflation outlook is further complicated by the fiscal response to the disaster. The government has announced a one-year suspension of the fiscal rule, with higher spending expected for relief and reconstruction. The minutes noted that fiscal deficits were projected over the near term due to “greater spending for relief and reconstruction efforts as well as lower revenue as a result of the projected fallout in economic activity”.

As a result, the central bank warned that risks to the inflation forecast were “skewed to the upside”, and said easing monetary policy could undermine price stability. The committee stressed the need for “heightened surveillance on the second-round impact of price increases on core inflation” and for communication aimed at keeping inflation expectations anchored.

Officials also underscored the importance of maintaining strong foreign exchange buffers. The committee emphasised the need to “continue to maintain robust foreign exchange reserves to foster confidence in the foreign exchange market”, the minutes said. Net international reserves stood at $6.6 billion at end-December, higher than previously projected, supported by multilateral inflows and insurance payouts.

For investors, the combination of tight monetary policy, expansionary fiscal spending and strong reserves presents a mixed picture. While the economy has weakened, the central bank’s commitment to stability has helped preserve policy credibility.

More broadly, the BOJ’s assessment highlights how climate-related shocks are increasingly shaping long-term macroeconomic outcomes in vulnerable small economies. Rather than acting as temporary setbacks, extreme weather events are now forcing policymakers to contend with persistent supply constraints, altered growth paths, and narrower policy options.

In Jamaica’s case, Hurricane Melissa has exposed the limits of traditional countercyclical policy. With growth constrained and inflation elevated, the central bank faces a reduced range of safe choices. The result, the minutes suggest, is a defensive stance aimed at preserving stability — even at the cost of a slower recovery.