JAMAICA | Following BOJ Interest Rate Hike, Manufacturers, Exporters Warn of Recession

KINGSTON, Jamaica – 22 May 2022: The Jamaica Manufacturers and Exporters Association (JMEA) says the latest increase in interest rates by the Bank of Jamaica (BOJ) puts the Jamaican economy at risk for a recession.

In a statement following the increase, the JMEA took objection to the hike, noting that it has taken "note of the BOJ’s latest adjustment to the policy interest rate to 5.0% per annum effective May 20, 2022. This reflects a cumulative increase in the policy rate of 450 basis points (bps) since October 2021.

"Like other countries, Jamaica still faces adverse macroeconomic conditions due to the COVID-19 Pandemic, supply chain, and logistics crises, now aggravated by the Ukraine-Russia war," the JMEA said.

"Our people are suffering from underemployment and increased cost of food, energy, and transportation, and we cannot afford to derail the small improvements in the economy currently taking place," the JMEA statement pointed out.

"There is great level of uncertainty with our macroeconomic climate given spiraling prices and increasing interest rates.

In Jamaica, point-to-point inflation rate (April 2021 – April 2022) was 11.8 per cent, outside of the target range, which remains 4.0%– 6.0% with no adjustment to reflect the global hyper-inflation crisis.

"In the US, annual inflation accelerated to 8.5% in March of 2022, the highest since December of 1981; Canada was 6.7% the highest since 1997; the UK increased to 7%, the highest since March of 1992. Jamaica is not alone, but we are extremely vulnerable given our economic dependency to these large economies and years of minimal growth! the JMEA exclaimed.

Preliminary estimates indicated that, the Jamaican economy grew by 4.6 per cent in 2021, well below the expected range of 7.0% to 10.0% initially predicted for FY2021/22. Jamaica has not returned to pre-COVID levels and now shows signs of slowing having recorded growth of 1.4% in the fourth quarter of 2021 when compared to the third quarter of 2021.

The JMEA is extremely concerned that these tighter monetary policy stance presents a risk to Jamaica’s short to medium-term economic growth prospects. Particularly, there is real risk presented for the construction industry as mortgage rates climbed to 8.5% before this latest increase. Any further increases, will likely have a significant negative impact on the construction industry.

"Likewise, for manufacturing, the supply chain crisis requires industry players to access financing to run high inventories, to supply critical goods. The world is on the brink of famine as many countries hug their food supplies. The Government should be supporting local manufacturers and farmers to make sure Jamaicans have food, fertilizer, and oil to survive this global crisis. Continued interest rate hike does not facilitate business but will only kill operations!

The Jamaican economy is in a delicate stage, and it is the responsibility of policy makers to act within this context. Policies should not be implemented in isolation but must consider all factors. For instance, the BOJ in its press release noted that the measures are expected to cause demand in the economy to fall and, consequently, limit the ability of businesses to pass on price increases to consumers.

Data released by STATIN for the FY2021/22 producer price index (PPI), which measures the average change in the selling prices received by domestic producers of goods and services over time, shows the PPI for the manufacturing industry advanced by 21.3 per cent.

The fact is that local manufacturers have been experiencing price increases since 2020 and often have not fully passed these increases to consumers. For businesses to survive, and maintain employment levels, at some point they will have to pass on these increases to consumers.

"Noteworthy too, Jamaica, like the US is at a point where further increases in interest rates could lead to a recession. Looming external risks may cause a downturn in tourism and a reduction in income of Jamaicans living in the US, which will impact remittances, coupled with our domestic matters, would undoubtedly derail any possibility of the economy meeting its growth target, between 2.0% and 4.0% FY2022/23," the JMEA statement concluded.