Jamaica Economic Intelligence | Q1 2017 | January–March 2017
Key Findings
- Donald Trump is inaugurated as 45th US president on January 20; the first 100 days bring executive orders, a travel ban and relentless market uncertainty
- The Federal Reserve raises rates on March 15 — the first of three planned 2017 hikes — as US growth and inflation data justify a faster normalisation pace
- Theresa May triggers Article 50 on March 29, formally beginning the two-year Brexit clock and the most complex trade negotiation in British history
- Jamaica completes its sixteenth consecutive IMF EFF quarterly review; the programme’s end is now a single year away
- Winter tourism delivers another record season; stopover arrivals run ahead of the comparable 2016 period across all major source markets
- Jamaica’s unemployment rate falls to approximately 12.4 percent — its lowest reading in nearly a decade and a half
It is noon on January 20, 2017, in Washington, D.C. The forty-fifth president of the United States places his hand on two Bibles and recites thirty-five words that every American schoolchild knows. The crowd on the Mall is smaller than some expected. The speech is unlike any inaugural address that has come before it — “American carnage,” the new president says, and the phrase echoes around the world’s trading floors before the sentence is finished. In Kingston, it is also noon. In the finance ministry, the Bank of Jamaica, the offices of the Jamaica Tourist Board, people are watching the same television feeds, processing the same images. And then they turn back to their work. Because the numbers that matter to Jamaica’s economy — the inflation rate, the primary surplus, the foreign exchange reserves, the hotel occupancy figures for Montego Bay — do not pause for inaugurations. The discipline that has been built, at enormous cost, over four years does not depend on who is standing on a podium in Washington. That is, perhaps, the most important thing that has happened to Jamaica’s economy since 2013. It has learned to keep moving.
January 20: A New Presidency, A World Recalibrating
Donald Trump’s inauguration as the forty-fifth President of the United States was the culmination of a transition period that had, paradoxically, delivered better-than-expected outcomes for financial markets even as it generated unprecedented political uncertainty. The “Trump bump” in US equities that had begun on election night continued through January — the S&P 500 was approaching all-time highs, US consumer confidence was at its highest level since 2000, and business investment surveys were reflecting optimism about deregulation and tax reform that had not been present before November 8. Markets were, in effect, pricing the new administration’s pro-growth fiscal agenda while discounting its trade and immigration positions as negotiating postures rather than firm policy commitments.
The first weeks of the Trump presidency tested that market composure. An executive order on January 27 implementing a travel ban on nationals from seven predominantly Muslim countries — quickly challenged in federal courts and partially blocked by a judge in Seattle — generated immediate diplomatic controversy and legal uncertainty. The administration’s signals on trade were similarly disruptive: withdrawal from the Trans-Pacific Partnership on January 23, demands for NAFTA renegotiation, and persistent rhetoric about border adjustments and import tariffs that kept currency markets in a state of sustained unease. Through February and March, the pattern was consistent — presidential tweets and official statements that moved markets in the morning, then reversed or qualified before close of business.
For Jamaica, the Trump administration’s first quarter was consequential primarily through two channels: the tourism market and the monetary policy environment. On tourism, the travel ban and the broader cultural climate of the early Trump era raised genuine questions — which the Q1 data could not yet definitively answer — about whether American consumers were becoming more cautious about international travel, or whether those who were travelling were changing their destination preferences. Jamaica’s winter season data, tracking through January and February, showed continued strength in US visitor arrivals, suggesting that if there was a chilling effect, it had not yet materialised in booking behaviour. The administration’s stated commitment to a stronger US dollar, if sustained through Fed policy, would also matter: a stronger dollar makes Jamaica cheaper for American visitors, which is a net positive for the island’s dominant tourism market.
The Fed Moves: March’s First Hike of Three
The Federal Open Market Committee’s March 14–15 meeting delivered what the committee’s December 2016 projections had promised: a rate increase, the first of what the “dot plot” suggested would be three hikes across the calendar year. The FOMC raised the federal funds rate target range from 0.5–0.75 percent to 0.75–1.0 percent — the third increase in a decade — citing the continued strength of the US labour market, core inflation moving toward the 2 percent target, and the improved growth outlook reflected in business and consumer confidence surveys. Chair Yellen’s press conference struck a notably upbeat tone, describing the decision as reflecting the US economy’s continued progress rather than any response to the post-election sentiment surge.
For Jamaica, the March hike and the two additional increases it implied for the remainder of 2017 were the most significant monetary policy development in the island’s external environment since the December 2015 lift-off. The Bank of Jamaica’s assessment was that Jamaica’s improved external position — lower debt, compressed sovereign spreads, adequate foreign exchange reserve cover — provided meaningful insulation against the kind of capital flow disruption that US tightening had threatened in 2013. Jamaican sovereign bond spreads had barely moved in the months since December 2016’s hike; the March move, fully anticipated and well telegraphed, produced no visible disruption in the J$ exchange rate or in the domestic money market. The taper tantrum of 2013, when Jamaica’s spreads had widened sharply at the first hint of Fed normalisation, was looking more like a memory of a different country than a template for what 2017 would bring.
The BOJ’s own policy rate was held steady through Q1 2017, the culmination of an easing cycle that had run its course. Inflation had moved modestly higher from the historic lows of late 2015 — the combined effect of recovering oil prices, a gradually depreciating J$ and food price normalisation — and was tracking in the 4–5 percent range. The BOJ’s judgment was that the easing cycle had delivered its full stimulative effect into the economy, and that holding rates at their current level while monitoring the Fed’s normalisation pace was the appropriate stance. The J$ continued its managed depreciation at a pace that was orderly and unsurprising — approximately 5–7 percent annual decline against the US dollar, well within the range that the foreign exchange market had come to expect.
Article 50: Brexit Becomes Real
Theresa May’s government triggered Article 50 of the Treaty of Lisbon on March 29, 2017, formally notifying the European Union of the United Kingdom’s intention to withdraw and beginning the two-year clock that would, by operation of treaty, end with the UK’s departure from the EU on or before March 29, 2019. The moment had been anticipated for months — May had signalled repeatedly that Article 50 would be triggered before the end of March — and the market reaction was accordingly muted. Sterling had long since absorbed the post-referendum shock, and was trading approximately 15 percent below its pre-referendum level against the dollar: a permanent-looking re-pricing rather than a transitional volatility episode.
For Jamaica, Article 50’s triggering marked the beginning of a negotiation that would define the UK’s economic relationship with Europe — and, indirectly, with the Commonwealth — for decades. The immediate practical implications for Jamaica were limited: trade relations between Jamaica and the UK operate under the existing Cariforum-EU Economic Partnership Agreement, whose post-Brexit successor would need to be negotiated separately, and the JTB’s marketing relationships with UK tour operators and airline partners were not affected by the formal Brexit trigger. But the medium-term questions — what trade framework would govern Jamaica-UK economic relations after March 2019, how sterling’s sustained weakness would affect UK visitor volumes and diaspora remittances, and whether the post-Brexit UK would prioritise Commonwealth partnerships in ways that benefited Caribbean economies — were becoming more pressing as the negotiation began in earnest.
The IMF Programme’s Final Chapter
Jamaica completed its sixteenth consecutive IMF EFF quarterly review in Q1 2017, confirming that the programme remained fully on track as it entered what all parties understood to be its final phase. The programme, originally signed in May 2013 for a four-year term, was now twelve months from its scheduled conclusion — and sixteen consecutive reviews without a single waiver, missed target or off-track episode were now the established record, rather than the aspirational benchmark they had been in 2015. The IMF’s staff team noted, with the measured warmth that had become characteristic of its Jamaica communications, that the programme’s fiscal achievements were being sustained and that the structural reform agenda was progressing in ways that supported confidence in post-programme sustainability.
The programme’s final year was increasingly focused not on what Jamaica needed to achieve to pass each quarterly review but on what institutional architecture would sustain the fiscal framework after the quarterly reviews ended. The IMF and the finance ministry were in active discussion about a successor arrangement — the most likely option was a Precautionary Standby Arrangement (SBA), which would not provide new financing but would signal continued IMF engagement and conditionality, providing an external anchor for fiscal discipline during the politically sensitive transition to fully independent budget management. The IMF’s standard practice was to offer such arrangements to programme countries that had demonstrated sufficient reform track record — and Jamaica’s record was, by any measure, sufficient. The SBA discussion was not yet public, but its logic was understood within the finance ministry and the Bank of Jamaica as the natural successor to a programme that had achieved its stabilisation objectives.
Tourism: The Winter That Kept On Giving
The January–March quarter — Jamaica’s peak winter tourism season — delivered another record performance. The Jamaica Tourist Board’s preliminary data showed stopover arrivals tracking ahead of the comparable 2016 period — itself already a record — across all major source markets. The US market, which had grown consistently since 2012, was showing no sign of the hesitation that some industry observers had anticipated in the wake of Trump’s travel ban and the early confusion about what the new administration’s immigration enforcement posture would mean for international visitor processing. In practice, Jamaican visitors entering the United States — and American visitors entering Jamaica — experienced no change in travel procedures through Q1, and the tourism booking data reflected that continuity.
Hotel capacity continued to expand. The completion of several major projects that had been in construction through 2015–2016 — including additional inventory in Montego Bay and along the south coast — meant that Jamaica was able to absorb the growing volume of arrivals without the occupancy-rate pressure that had constrained revenue growth in previous peak seasons. The all-inclusive segment, in which Jamaica has been a Caribbean leader for two decades, was operating with the kind of advance booking lead that allowed resort operators to plan staffing, purchasing and programming with confidence. The economic case for continued investment in Jamaica’s tourism product was as compelling as it had ever been.
The Domestic Economy: Unemployment at a Fifteen-Year Low
The quarter’s most striking domestic data point was contained in the Statistical Institute of Jamaica’s January 2017 labour force survey: Jamaica’s unemployment rate had fallen to approximately 12.4 percent — its lowest level since at least 2002, and a decline of more than four percentage points from the programme’s 2013 starting point. The improvement was concentrated in the private sector, with tourism, distribution, construction and the business process outsourcing industry all contributing positive employment numbers to the quarterly figures. Public-sector employment had held broadly steady, as the programme’s constraints on the public-sector wage bill had limited scope for government hiring, making the private-sector job creation all the more significant as evidence that the macro adjustment was translating into genuine labour market improvement.
GDP growth for calendar 2016 — the STATIN full-year estimate was released in Q1 2017 — came in at approximately 1.5 percent, the second consecutive year above 1 percent and consistent with the trend improvement that the programme’s supporters had promised and its sceptics had doubted. It was not the 3–4 percent growth that the island’s development aspirations required, but it was genuine, positive and broad-based across sectors — a meaningful contrast with the near-stagnation of 2009–2013. The trajectory was more important than any single year’s reading: Jamaica was growing, its labour market was tightening, and its debt burden was falling. The combination, sustained, was the precondition for the investment-led acceleration that both the PNP and JLP governments had identified as the next phase of the island’s economic development.
What This Means
Homeowners are entering the second quarter of 2017 with the property market’s best fundamental backdrop since before the 2008 crisis. Unemployment at a fifteen-year low, GDP growth sustained, mortgage rates still near historical lows — the conditions that support residential property values are all moving in the right direction. Trump’s presidency introduces uncertainty about the US economic environment, but the domestic Jamaican story has been insulated from external shocks by the strength of the fiscal reform. Those who have been watching the market from the sidelines are running out of reasons to wait.
Renters are experiencing improved income conditions as the labour market tightens. Unemployment at 12.4 percent is still too high — the structural unemployment floor that Jamaica’s skills mismatch and labour market informality creates is probably somewhere around 8–9 percent — but the direction is unambiguous. Electricity costs have stabilised. Food price inflation is moderate. The combination of improving employment and stable costs is the closest thing to genuine real income growth that lower-income Jamaicans have experienced in fifteen years. The social housing gap remains the structural challenge that macroeconomic improvement alone cannot solve.
Developers are reading the winter tourism numbers and the unemployment data with the same confidence: demand is there, the workforce is improving, and the investment climate is more supportive than it has been in a decade. The JLP government’s emphasis on reducing bureaucratic friction and accelerating planning approvals is beginning to show in the speed with which new residential and commercial projects are moving from planning to execution. The Trump uncertainty and the Brexit negotiation are real external risks, but neither has yet affected the domestic demand picture in ways visible in Q1 data.
Businesses across Jamaica are navigating an external environment that is more uncertain than at any time since 2013, but a domestic environment that is the most constructive in a decade. Trump’s trade rhetoric introduces questions about the cost of the imported inputs that Jamaica’s manufacturing and processing sectors depend on — but the island’s relatively limited exposure to US goods trade reduces the direct risk compared to a country like Mexico. The bigger question is whether the US economic confidence that is driving the tourism market and sustaining remittance flows can be sustained as the Trump administration translates its campaign promises into policy reality.
Diaspora Jamaicans watching Q1 2017 from North America and the United Kingdom are tracking two very different political environments. In the US, the Trump presidency is generating sustained uncertainty about immigration enforcement, travel conditions and the future of institutions that the Jamaican diaspora has depended on for decades. In the UK, Article 50’s triggering has made Brexit a live negotiation rather than a theoretical risk, with real implications for the rights of Jamaican nationals in Britain and for the sterling purchasing power of UK-based remittances. Against this backdrop, the case for Jamaican property investment — as a hedge, as a long-term positioning, as a connection to an island whose economic fundamentals have never been stronger — is being made more urgently than at any previous point.
Outlook
The second quarter will test whether the Trump rally in US markets continues to support American consumer confidence and travel spending — or whether the administration’s difficulties in translating campaign promises into legislative reality begin to erode the optimism that has driven the post-election sentiment surge. A US economy growing at 2–2.5 percent with a confident consumer and a stable labour market is Jamaica’s preferred external environment; the Q2 data will begin to reveal whether that environment is holding. The Fed’s next projected hike — June — will be the second signal of whether the three-hike pace projected in December is achievable or whether global developments again cause the Committee to temper its ambitions.
Domestically, the IMF EFF programme is now approaching its final act. The seventeenth and eighteenth quarterly reviews — the programme’s last two — will be completed in Q2 and Q3 2017. The discussion about a successor arrangement, whether a Precautionary SBA or another framework, will move from internal planning to public announcement through the year. And Jamaica’s tourism sector, now in its fourth year of consecutive record performance, will face the summer season with both the tailwind of accumulated brand strength and the question of whether the Trump era’s travel climate will affect American booking behaviour for Caribbean holidays. If the Q3 data holds up, 2017 will be Jamaica’s fourth consecutive tourism record. That, combined with an IMF exit on terms no one would have imagined in 2013, would be an extraordinary achievement. The question is no longer whether it is possible. It is whether Jamaica can see it through.
Jamaica Economic Intelligence is an independent data-driven journalism series tracking Jamaica’s economic performance across the housing, tourism, fiscal and monetary sectors. Historical data drawn from Bank of Jamaica, Statistical Institute of Jamaica, International Monetary Fund and Jamaica Tourist Board publications. This report covers Q1 2017: January–March 2017.
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