Jamaica Economic Intelligence | Q3 2017 | July–September 2017
Key Findings
- Hurricane Harvey floods Houston on August 25; Hurricane Irma obliterates Barbuda on September 6 and cuts a catastrophic path through the Eastern Caribbean — Jamaica is largely spared
- Hurricane Maria devastates Puerto Rico on September 20 — complete power grid failure, a humanitarian crisis and a tourism industry left in ruins
- Jamaica completes the eighteenth and final quarterly review of the IMF Extended Fund Facility — four years, two governments, zero waivers, zero missed targets
- The IMF and Jamaica announce a successor Precautionary Standby Arrangement, a lighter-touch external anchor for post-programme fiscal discipline
- The destruction of competing Caribbean destinations redirects autumn and Q4 tourism demand toward Jamaica; a fourth consecutive record year is now confirmed
- Jamaica’s unemployment rate falls below 12 percent for the first time in more than a decade and a half
At 1:47 in the morning on September 6, 2017, Hurricane Irma makes landfall on Barbuda. The sustained winds are 185 miles per hour. The island — all 62 square miles of it, all 1,800 residents — takes the full force of the most powerful Atlantic hurricane ever recorded at landfall. By morning, 90 percent of the island’s structures are damaged or destroyed. Barbuda is, for practical purposes, uninhabitable. Within two weeks, Puerto Rico has been hit by Maria. The BVI is in ruins. St. Martin is split between its French and Dutch halves, both devastated. The Caribbean, that arc of islands that sells itself to the world as paradise, is burning in a season from hell. In Kingston, the weather service is tracking every system. Emergency response teams are on standby. But the storms curve north. The outer bands brush the island with rain and gusts. And then the phones start ringing at the Jamaica Tourist Board: travellers whose autumn bookings to Barbuda, St. Martin, the BVI and Puerto Rico need somewhere else to go. This is not the windfall anyone wanted. But Jamaica is open. And it is ready.
The Season That Changed the Caribbean Map
The 2017 Atlantic hurricane season was the most destructive since records began in their modern form. Hurricane Harvey made landfall near Rockport, Texas on August 25 as a Category 4 storm and then stalled over the Houston metropolitan area for four days, producing rainfall totals of up to 60 inches — the highest ever recorded from a tropical cyclone in the contiguous United States — and flooding more than 100,000 homes. The economic damage to the Houston region was estimated at more than US$125 billion, making Harvey the second-costliest hurricane in US history. For Jamaica, the immediate implication was not economic but human: the Jamaican diaspora in Texas was significant, and the weeks following Harvey brought the kind of community disruption that ultimately affects remittance flows and investment intentions.
Irma was something else entirely. Strengthening to Category 5 with 185 mph sustained winds — the highest ever recorded in the Atlantic basin — Irma made landfall on Barbuda on September 6, destroying the island so thoroughly that all 1,800 residents were evacuated to Antigua in the storm’s aftermath. The storm then moved through Saint Martin/Sint Maarten, where it caused destruction estimated at 95 percent of the built environment on the Dutch side; the British Virgin Islands, where Tortola and Virgin Gorda were devastated; the Turks and Caicos; and Cuba’s north coast before turning toward Florida, making a second landfall at Cudjoe Key on September 10. The Florida Keys were severely damaged. Miami experienced its worst storm since 1992.
Maria arrived fourteen days later. Making landfall at Yabucoa, Puerto Rico on September 20 as a Category 4 storm with sustained winds of 155 mph, Maria caused damage estimated at US$90 billion and destroyed Puerto Rico’s already-fragile electrical grid. Power was out for essentially the entire island — 3.4 million American citizens — for weeks, and for more than a year in some areas. The official death toll was later revised upward to approximately 3,000. Puerto Rico’s tourism economy, its hotel sector, its airport capacity, and the confidence of the US mainland visitors on whom it depended were all devastated. A destination that had been hosting between three and four million tourists annually was effectively offline for the better part of the following year.
Jamaica Holds: The Geography of Good Fortune
Jamaica was brushed by both Irma and Jose — the fourth major storm of the season — but suffered no direct hit from either. Irma’s outer bands produced rainfall and gusty winds through the island on September 8–9, but the storm’s core passed to the north, sparing Jamaica the catastrophic impacts it delivered to Barbuda, the BVI and Saint Martin. The island’s meteorological services, its national disaster preparedness infrastructure and its emergency response capacity were all activated through the storm period — a mobilisation that reflected not only the professional management of the Office of Disaster Preparedness and Emergency Management but the accumulated experience of a country that knows what hurricanes can do and prepares accordingly. When Irma passed to the north, the immediate relief in Kingston was palpable.
The economic consequences of Jamaica’s geographic good fortune — unasked for and certainly not to be celebrated at the expense of neighbours whose suffering was acute — were nonetheless real and significant for the island’s tourism sector. The Jamaica Tourist Board reported a surge in booking enquiries from travellers who had planned autumn Caribbean holidays to Puerto Rico, Barbuda, St. Martin, the British Virgin Islands and other storm-affected destinations. Charter flight operators were rerouting capacity. All-inclusive resort chains with properties across the Caribbean were redirecting their group bookings to Jamaica. The Q4 tourism picture, which had always been expected to be strong, was now being shaped additionally by the geography of catastrophe: Jamaica open and operational when competitors were closed and rebuilding.
Eighteen Reviews. The Programme Is Complete.
On September 29, 2017 — as the Caribbean was still assessing the full scale of Maria’s destruction in Puerto Rico — Jamaica completed the eighteenth and final quarterly review of the Extended Fund Facility programme that had governed its economic management since May 2013. The number requires a moment of attention: eighteen consecutive quarterly reviews, not one waiver, not one missed target, not one off-track episode in four years and four months. Two governments, two finance ministers, a change of prime minister, a PetroCaribe buyout, a US election, a Brexit referendum, three Atlantic hurricane seasons and a global oil price collapse that had both helped and complicated the adjustment. Through all of it, every three months, Jamaica had met its conditions. No other Caribbean programme country had achieved such a record.
The IMF’s final review statement was, for an institution known for measured prose, almost effusive. Jamaica’s fiscal adjustment had been “exceptional.” The structural reforms had “fundamentally transformed the institutional architecture of fiscal management.” The debt-to-GDP ratio — 146 percent at the programme’s peak, a level that had been described in 2013 as potentially unsustainable — had fallen to approximately 106 percent and was on a trajectory that made the programme’s original sub-100 percent target credible for the early 2020s. The IMF Board approved the final review without discussion; the only question before the Board was not whether Jamaica had met its conditions but what would come next. The answer was already agreed.
The successor arrangement — a Precautionary and Liquidity Line arrangement, announced simultaneously with the completion of the final EFF review — provided Jamaica with a precautionary credit line from the Fund without committing it to new conditionality beyond the maintenance of the fiscal framework it had already established. The arrangement was, in effect, a formal endorsement by the IMF of Jamaica’s capacity to manage its own economy within the parameters the programme had set — an external vote of confidence that the Holness government would invoke in its communications with credit-rating agencies, bond investors and the international business community. The EFF was over. The reform story was not.
The Fed Holds: Hurricanes Pause the Tightening
The Federal Open Market Committee’s September 19–20 meeting — held while Puerto Rico was still in the immediate aftermath of Maria — produced the expected outcome: no rate change. The FOMC held the federal funds rate target at 1.0–1.25 percent, noting that the hurricanes were likely to cause disruption to economic activity in the near term without fundamentally altering the medium-term outlook. Chair Yellen’s press conference acknowledged the “tragic” impact of the storms while maintaining the Committee’s projection that one further 2017 hike — in December — remained the central case, consistent with the three-hike pace that the year’s normalisation had been following. The September hold was read by markets as prudent rather than dovish; the December hike remained a near-certainty in market pricing through the quarter’s end.
For Jamaica, the Fed’s September pause was the fourth time in five years that a major external disruption — China panic, Brexit, US election uncertainty, Atlantic hurricane season — had delayed or moderated the US monetary tightening cycle that the island’s economy had been braced to absorb. The pattern of delays did not mean the tightening would not ultimately arrive; December’s projected hike would bring the total normalisation to date to five hikes in two years, a meaningful shift in the global interest rate environment. But Jamaica’s track record of absorbing that shift without crisis was now sufficiently established to constitute a policy result: the reform had worked not only in the fiscal and debt metrics but in the external resilience it had built.
Tourism: The Fourth Record, Confirmed
The summer tourism season — Jamaica’s peak period for US family travel — delivered another strong performance, and the combination of strong bookings through August and the post-hurricane redirection of Caribbean tourism demand through September meant that the year’s full-year tourism outturn was on track not merely to match but to meaningfully exceed the 2016 record of approximately 2.2 million stopover arrivals. The Jamaica Tourist Board’s advance estimates suggested that 2017 full-year stopover arrivals would come in at approximately 2.35–2.40 million — a fourth consecutive record and an increase of more than 10 percent on 2016 — driven by the combination of underlying US market growth, the Caribbean tourism redistribution that the hurricane season had produced and the continued expansion of hotel capacity that had been delivering new rooms through the construction pipeline since 2015.
The economic multiplier from this level of tourism spending was being tracked by the Statistical Institute of Jamaica and the Bank of Jamaica through the supply chain data that flowed from hotel operating accounts to agricultural purchasers, transportation operators, entertainment providers and the informal economy that surrounds every major resort corridor. Foreign-exchange earnings from tourism for 2017 were being projected at approximately US$2.8–3.0 billion — a figure that, if confirmed, would represent a record and would account for a larger share of Jamaica’s external current account than at any previous point. The tourism sector was not merely Jamaica’s largest economic sector; it was the primary driver of the labour market improvement, the construction recovery, and the services export growth that was underpinning the broadest economic recovery the island had experienced since before the 2008 crisis.
The Domestic Economy: Below Twelve Percent
The July 2017 labour force survey data, released in Q3, recorded Jamaica’s unemployment rate at approximately 11.7 percent — the first reading below 12 percent since before 2001, and a decline of more than five percentage points from the 16.9 percent that had been the starting point when the EFF programme was signed. The achievement was the labour market equivalent of the debt ratio’s fall from 146 percent: it demonstrated that the reform programme’s gains were not purely fiscal abstractions but were translating into concrete improvements in the lived experience of Jamaican workers. Jobs in tourism, construction, business process outsourcing, retail and distribution were the primary contributors to the improvement; public-sector employment had remained largely flat, confirming that the private sector was doing the work that the reform period had assigned to it.
GDP growth for the first half of 2017 was tracking at approximately 2.0–2.2 percent annualised — above the 1.5 percent ceiling that had constrained the post-crisis economy, and beginning to approach the range that would meaningfully reduce the gap between Jamaica’s productive capacity and its development aspirations. The construction sector was contributing positively for the fifth consecutive quarter. Financial services were growing as credit expansion accelerated. And the BPO sector, which had been building its Kingston and Montego Bay footprint steadily through the reform period, was now employing enough Jamaicans — and generating enough foreign exchange — to appear meaningfully in the services trade data. The economy of 2017 was not the economy of 2013. The question, for the first time in a generation, was not whether it would stabilise but how quickly it would grow.
What This Means
Homeowners enter Q4 2017 in the most favourable property market environment since before the global financial crisis. Unemployment below 12 percent, GDP growth above 2 percent, mortgage rates still near historical lows, tourism at a record and the IMF programme concluded on terms that affirm Jamaica’s economic credibility — the fundamentals for residential property values are as strong as the data has shown them in fifteen years. For those who have been waiting for the definitive signal that Jamaica’s recovery is structural rather than cyclical, the IMF’s completion of the eighteenth review is that signal. The discipline is embedded. The recovery is real.
Renters are experiencing the most broadly improving economic conditions in two decades. Unemployment below 12 percent means the labour market is tightening in ways that translate into real wage pressure across the tourism, retail and BPO sectors most accessible to lower-income workers. Energy costs are stable. The hurricane season has passed without hitting Jamaica directly, avoiding the cost-of-living shock that a major storm would have produced. The structural housing supply gap remains the unresolved challenge — but an economy growing at 2 percent with a tightening labour market is the precondition for the private investment in affordable housing supply that market conditions alone cannot create.
Developers are processing Q3 2017 with a complex mix of relief, opportunity and ethical caution. The hurricane season’s devastation of competing destinations is an unasked-for demand windfall that will shape Jamaica’s tourism capacity needs through 2018 and beyond — but the appropriate response is not to celebrate but to build: to expand the room inventory, the airport capacity, the transportation infrastructure and the service quality that will convert the post-hurricane redirection into a permanent expansion of Jamaica’s market share. The IMF programme’s completion is the final green light for developers who had been waiting for confirmation that Jamaica’s macro environment was secure before committing capital at scale.
Businesses across Jamaica are entering the fourth quarter with better-than-expected conditions from multiple directions simultaneously. The IMF programme is complete, removing the uncertainty about whether post-programme Jamaica would maintain its fiscal discipline — the Precautionary SBA is the answer. Tourism is at a record. GDP is growing above 2 percent. Unemployment is below 12 percent. The external environment’s primary risk — the Fed’s continued tightening — is being absorbed without domestic disruption. For businesses with a medium-term investment horizon, Q3 2017 is as clear a buy signal as the Jamaica economy has produced.
Diaspora Jamaicans watching the hurricane season from North America have experienced one of the most anxious periods in recent memory — watching storms track toward the Caribbean, tracking projected paths, checking on family, relieved when the core systems curved north of Jamaica. For those in Texas, Harvey’s flooding was immediate and personal. For those with properties in Jamaica, the storm season’s resolution without a direct hit is both a relief and a reminder that hurricane risk is permanent and insurance is not optional. For those considering investment in Jamaica, the IMF programme’s completion on terms that no observer would have predicted in 2013 is the definitive argument: this is an economy that delivered. The question of when to invest has been answered by four years of data. The answer is now.
Outlook
The annual review will close a year that has been, by any measure, the most consequential in Jamaica’s modern economic history. The EFF programme’s completion, the Precautionary SBA’s announcement, a fourth consecutive tourism record and unemployment below 12 percent for the first time in a generation — these are not incremental improvements but structural transformations. The questions for 2018 are not the survival questions of 2013 but the growth questions of an economy that has stabilised and now needs to accelerate: how does Jamaica achieve 3–4 percent GDP growth? What does the post-hurricane Caribbean tourism landscape look like when competitors begin to rebuild? How does the Holness government manage the transition from external programme discipline to self-imposed fiscal rules as the election cycle approaches?
The December 2017 Federal Reserve meeting will almost certainly deliver the year’s third hike, bringing the federal funds rate to 1.25–1.5 percent. The tightening cycle is running. Jamaica is absorbing it. The 2018 political calendar — with a general election due by February 2021 but with the JLP’s economic track record making an earlier call possible — is the next uncertainty on the domestic horizon. But the economy that faces that uncertainty is not the economy of 2013. It has reserves, it has credibility, it has a track record and it has the institutional architecture that four years of reform have embedded. That is a different country. And the data is beginning to say so.
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 Q3 2017: July–September 2017.
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