The Hotels Were Full in January. They Were Dark by March.

Jamaica Economic Intelligence | Q1 2020 | January–March 2020

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Key Findings

• A novel coronavirus identified in Wuhan, China in late December 2019 becomes a global pandemic: the WHO declares a Public Health Emergency of International Concern on January 31 and a pandemic on March 11, by which point more than 100 countries have confirmed cases
• The Federal Reserve makes two emergency inter-meeting rate cuts — 50 basis points on March 3 and 100 basis points on March 15 — returning to the zero lower bound and restarting unlimited quantitative easing; the moves are the most aggressive emergency monetary response in the institution’s history
• Global financial markets suffer their fastest descent from record highs to bear market territory in recorded history: the S&P 500 falls 34 percent from its February 19 peak to its March 23 trough in just 33 days
• The US Congress passes the CARES Act on March 27 — a $2.2 trillion stimulus package, the largest in American history — as governments globally deploy fiscal responses of a scale not seen since the Second World War
• Jamaica’s winter tourism season, which had been running ahead of the record pace needed for a seventh consecutive record, is halted in March as the island closes its borders to incoming passengers; the consecutive record streak, built over seven years, ends
• Jamaica’s government activates the fiscal space that seven years of reform created — the debt reduction that had proceeded through the pandemic’s early weeks becomes the country’s primary defence against the crisis

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It is the morning of March 23, 2020, and the Jamaica Tourist Board’s January arrival numbers are irrelevant. They had been running ahead of the comparable 2019 period — the seventh consecutive record had looked, as recently as February, like a matter of months rather than years. The winter season was performing. The advance bookings were strong. The US consumer, whose confidence the Fed’s three 2019 cuts had supported, was spending. And then, across five weeks in March, the world stopped flying. Not slowed. Not reduced. Stopped. The airports that had carried Jamaica to six consecutive records went quiet. The resorts that had been posting record occupancy in January closed their restaurants, then their pools, then their gates. The last international guests checked out in the third week of March, and the question that this series has been asking for seven years — will Jamaica set another record? — was answered. Not this year. Not this way. Something else had arrived. Something the reform period’s architecture had not been designed to withstand. And yet, in ways that would take months to fully appreciate, it was precisely the reform period’s architecture that would determine how Jamaica survived what was coming.

The Pandemic: From Wuhan to the World

The sequence of events that defined Q1 2020 began before the quarter did. On December 31, 2019, Chinese health authorities notified the World Health Organisation of a cluster of cases of pneumonia of unknown cause in Wuhan, a city of eleven million in Hubei province. On January 9, 2020, the WHO announced that Chinese authorities had identified a novel coronavirus — designated 2019-nCoV and later renamed SARS-CoV-2 — as the cause. On January 11, Chinese scientists shared the pathogen’s genome sequence with the international community, enabling diagnostic test development worldwide. On January 23, Wuhan was placed under lockdown, its eleven million residents unable to leave — an act of public health containment whose scale had no modern precedent. By then, cases had already been confirmed in Thailand, Japan, South Korea and the United States.

The WHO’s declaration on January 31 of a Public Health Emergency of International Concern — only the sixth in the organisation’s history — was, in retrospect, the last moment at which the crisis’s global character was still partially obscured by the assumption that China’s containment measures would work, that the virus’s spread outside Hubei would be limited, that the disruption would be concentrated and temporary. That assumption did not survive February. Italy’s outbreak, which became visible in the last week of February, transformed the epidemic into a European emergency with a speed that caught public health systems entirely unprepared. By February 23, Italy had locked down ten municipalities in Lombardy. By March 9, the entire country was under lockdown. The images from Italian intensive care units — overwhelmed physicians, field hospitals, patients on ventilators in corridors — made the abstract threat concrete in a way that no case count had managed.

The WHO’s March 11 pandemic declaration came as confirmed cases exceeded 118,000 across 114 countries, with more than 4,000 deaths. On the same evening, US President Trump announced a 30-day ban on travel from Europe. The combination of the pandemic designation and the travel ban — covering the Schengen Area, subsequently extended to the United Kingdom and Ireland — was the moment at which the global tourism and aviation system began its shutdown. Airlines began cancelling flights across all international routes. Hotels began closing. Governments began issuing their own travel advisories and border restrictions. The infrastructure of global movement that had been built over seven decades of post-war liberalisation entered, in the second week of March 2020, the most severe disruption in its history.

The Fed’s Emergency Response: Zero, Unlimited, Immediate

The Federal Reserve’s response to the pandemic was the most aggressive monetary policy mobilisation in the institution’s 107-year history, compressed into less than three weeks. The first move came on March 3 — an emergency inter-meeting cut of 50 basis points, reducing the federal funds rate target range to 1.0–1.25 percent. It was the Fed’s first inter-meeting cut since October 2008, in the depths of the financial crisis. Powell’s press conference on March 3 attempted to frame the cut as a response to the economic uncertainty created by the pandemic’s supply and demand disruptions, while acknowledging that monetary policy could not address the underlying public health challenge. Markets, which had hoped for a signal of resolve and received one, nonetheless continued to sell off as the scale of the pandemic’s economic impact became clearer through the following two weeks.

The second emergency move came on March 15 — a Sunday afternoon announcement of a 100-basis-point cut, bringing the target range to 0–0.25 percent, returning the fed funds rate to the zero lower bound that had defined the post-2008 recovery for seven years. Simultaneously, the Fed announced a $700 billion asset purchase programme — quantitative easing restarted — covering Treasury securities and agency mortgage-backed securities. On March 23, the Fed went further, announcing that asset purchases would be unlimited — it would buy as many Treasuries and MBS as needed to support smooth market functioning. The S&P 500, which had fallen 34 percent from its February 19 all-time high to the March 23 intraday low, began its recovery that day, in part on the signal that the monetary backstop was effectively infinite.

The quarter ended with the fed funds rate at zero, the Fed’s balance sheet expanding at a pace that would soon surpass the entirety of the post-2008 quantitative easing programmes, and a set of emergency lending facilities — the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Main Street Lending Program, the Municipal Liquidity Facility — whose scale and scope had no precedent. For Jamaica, the significance of the Fed’s emergency action was double-edged. The rate cuts and quantitative easing removed the external monetary pressure that the reform period had spent seven years building resilience against — but the reason for those cuts was a global economic shock that made the question of external rate pressure almost entirely secondary. A world of zero US interest rates was easier for Jamaica to finance in. A world of zero international tourism was a different kind of problem entirely.

The Market Crash: Thirty-Three Days

The S&P 500 closed at an all-time high on February 19, 2020 — 3,386 points, the culmination of an eleven-year bull market that had been the longest in American history. By March 23, it had fallen to 2,237 — a decline of 34 percent in 33 calendar days, the fastest descent from all-time high to bear market territory in recorded financial history. The speed was the distinctive feature: the 2008–2009 bear market had taken 17 months to trough; the 2000–2002 dot-com collapse had taken 31 months; the 1929 crash had produced its worst declines over multiple months. The COVID crash of March 2020 was instantaneous by comparison, a compression of panic and discovery into a period so short that the data still feels implausible when examined retrospectively.

The crash’s sectoral structure revealed everything about what the pandemic meant economically. Airlines, hotels, cruise lines and casinos fell 60–80 percent in weeks; these were businesses whose revenues were, by mid-March, approximately zero, and the market was pricing accordingly. Oil collapsed simultaneously as a separate shock — the failure of OPEC and Russia to agree on production cuts in early March triggered a price war, with Saudi Arabia flooding the market at the same moment that the pandemic was destroying global oil demand; Brent crude fell from approximately $50 per barrel in early March to below $30. The combination of a demand shock from the pandemic, a supply shock from the oil price war and a liquidity shock from the forced selling of leveraged positions produced the most concentrated financial crisis since 2008, and in some respects more acute in its initial velocity.

The recovery from the March 23 lows was nearly as rapid as the decline. The Fed’s unlimited QE announcement, the emerging details of the CARES Act’s fiscal scale and the stabilisation of credit markets by the emergency lending facilities produced a rally that, by quarter-end, had recovered approximately half the market’s peak-to-trough decline. The S&P 500 closed Q1 2020 at 2,585, down approximately 20 percent from the February 19 high. What remained entirely unclear at quarter-end was whether the recovery from the trough represented a genuine bottoming or a temporary relief rally in a bear market whose economic consequences had not yet been fully priced. The pandemic’s duration, the depth of the economic contraction it would produce, and the pace of the recovery on the other side of it were questions that Q1 2020 raised without answering.

CARES Act: Fiscal Mobilisation at Scale

The Coronavirus Aid, Relief, and Economic Security Act, signed by President Trump on March 27, 2020, was at $2.2 trillion the largest fiscal stimulus package in American history — larger than the entire GDP of all but eight countries. Its provisions spanned direct payments of $1,200 to most American adults, enhanced and expanded unemployment insurance of $600 per week above state benefits for up to four months, $500 billion in loans and grants to large corporations, $350 billion in forgivable loans to small businesses through the Paycheck Protection Program, $100 billion for hospitals and the healthcare system, and $150 billion for state and local governments. The Act’s passage through Congress, at a speed that Washington’s ordinary legislative rhythm made almost miraculous, reflected the scale of the consensus that the economic emergency required immediate and overwhelming response.

The CARES Act was one element of a global fiscal mobilisation whose aggregate scale represented the largest peacetime government spending expansion in history. European governments were announcing their own packages simultaneously: Germany’s stabilisation fund of €600 billion, France’s €300 billion guarantee scheme, the UK’s furlough scheme that would cover 80 percent of wages for workers unable to work — programmes whose fiscal costs would have been politically unimaginable months earlier and were approved in days. The European Central Bank’s €750 billion Pandemic Emergency Purchase Programme, announced March 18, provided the monetary anchor for the European fiscal response. The IMF’s call for member countries to “do whatever it takes” was the international institution’s explicit endorsement of deficit spending as the correct response to a crisis whose nature was unlike anything the post-war economic order had previously encountered.

Jamaica’s Winter Ends in March

The Jamaica Tourist Board’s Q1 2020 data told the story in two parts. January and February had been strong: arrivals were running comfortably ahead of the comparable 2019 period, and the tracking suggested that the seventh consecutive annual record was on course. The winter season — Jamaica’s peak period for North American visitors, running through Valentine’s Day and the spring break corridor into April — had produced the kind of first-quarter numbers that, in any prior year of the reform period, would have been the foundation for a full-year record. Then March happened. The travel bans, the hotel closures, the collapse of airline schedules and the Jamaican government’s own border measures combined to reduce March 2020 international arrivals to a fraction of the comparable 2019 period. By the end of the month, the resorts were functionally empty. The seventh consecutive record was not going to happen. The sequence that had begun in 2014 and had survived every external shock of the subsequent six years had ended.

The Jamaican government’s response moved quickly once the pandemic’s global character became clear. Prime Minister Andrew Holness announced a series of emergency measures through March — travel restrictions, the mandatory quarantine of returning residents, the closure of borders to incoming international passengers beginning March 21, the activation of the Disaster Risk Management Act. The resort hotels that had defined the island’s economic success story began an orderly shutdown, their last guests departing before the border closure took effect. The tourism sector that had employed tens of thousands of Jamaicans at the tightest labour market in the island’s modern history faced an overnight cessation of demand whose duration was, in March 2020, entirely unknown.

The Bank of Jamaica responded to the pandemic’s economic implications with its own emergency measures. The policy rate was reduced as part of a broader package of measures to maintain liquidity in the financial system and support credit availability through the crisis period. The foreign exchange reserve position that the reform years had built — the buffer that had kept Jamaica out of every prior emerging market stress episode — became the instrument through which the central bank could manage the inevitable currency pressures that a sudden cessation of tourism revenues would produce. The BOJ’s decade of institutional development was being tested in a way that no design exercise could have anticipated, by a shock whose nature was entirely outside the category of financial or macroeconomic disturbance. And yet the institutional architecture — the reserves, the regulatory framework, the independence of the central bank, the credibility earned through years of consistent policy delivery — was precisely what allowed the BOJ to act rather than react, to manage rather than be managed.

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What This Means

Homeowners close Q1 2020 in a property market whose fundamental case — built on seven years of improving employment, income growth, fiscal discipline and monetary stability — has not been reversed by the pandemic, but whose near-term realisation has been suspended by a shock of uncertain duration. The Fed’s return to zero interest rates, the global collapse of borrowing costs and the monetary frameworks that supported asset values through the 2008 crisis are all operating in the same direction they operated then — supportive of property values over a medium-term horizon that extends beyond the immediate crisis. NHT operations continue. The institutional framework that supports mortgage credit is intact. The question that Q1 2020 cannot answer is how long the suspension lasts — and what the employment picture looks like when travel resumes.

Renters are facing the most acute labour market disruption in Jamaica’s modern economic history. The tourism, BPO and hospitality workers whose employment had been the visible expression of the reform period’s success are, in March 2020, experiencing an abrupt cessation of the income stream that the tight labour market had been generating. The government’s social protection measures — emergency payments, food support programmes, deferral of utility disconnections — are the immediate safety net. The medium-term question is whether the skills, relationships and sector knowledge that the tourism employment build-up created are preserved through the crisis period, or whether a prolonged shutdown produces a more permanent dislocation of workers from the sector. The answer depends, more than any other single factor, on how long the hotels remain closed.

Developers processing Q1 2020 are doing so in a framework that has no historical precedent in this series. The demand-side fundamentals that had been building since 2015 — unemployment at record lows, tourism at record highs, income growth across the workforce — have been interrupted by a supply shock to global mobility whose duration is unknown. The residential development thesis does not depend on tourism arrivals directly; it depends on the employment and income that tourism generates, and on the willingness of investors to commit capital to an economy whose medium-term trajectory is sound. Neither of those dependencies has been structurally altered by the pandemic — they have been temporarily suspended. The reform period’s institutional achievements, which made Jamaica resilient against financial and macroeconomic shocks, are the same achievements that create the conditions for a recovery when mobility returns. That recovery will need developers to be ready for it.

Businesses across Jamaica are navigating a Q1 2020 whose external environment has moved from “the most constructive since the reform period began” — the description this series applied in January — to the most severe demand shock in living memory in a period of five weeks. The government’s business support measures, the BOJ’s liquidity provisions and the fiscal space that seven years of primary surplus discipline created are the resources available to bridge the period of suspended economic activity. What “bridge” means — how long, at what cost, with what effect on the government’s debt trajectory — are questions that will define Jamaica’s fiscal choices for years. The reform period was designed to give Jamaica options in a crisis. March 2020 is testing whether those options are sufficient for a crisis of this kind.

Diaspora Jamaicans monitoring Q1 2020 from their cities of residence — New York, Toronto, London, Miami — are watching the pandemic’s first wave from the inside. The cities of the Jamaican diaspora have been among the most severely affected: New York became the global epicentre of the outbreak in late March, with its hospitals under pressures that recalled the Italian scenes of February. For those who had been sending remittances home — a flow that had been Jamaica’s secondary earnings source after tourism — the economic disruption of the pandemic and the lockdowns of the diaspora cities will affect the capacity to remit in ways that Q1’s data has only begun to reveal. The Jamaica investment case’s long-term architecture is intact. The short-term environment is the most challenging this series has ever been required to assess.

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Outlook

Q2 2020 will be the quarter in which the pandemic’s economic consequences become visible in Jamaica’s data in their full severity. The April–June period will include the entirety of a tourism sector operating at near-zero, a labour market absorbing the shock of the hospitality sector’s near-complete shutdown, and a government managing fiscal demands — for healthcare, for social protection, for economic support — that the reform period’s surpluses were never designed to cover simultaneously. The IMF, which Jamaica graduated from in 2019, will be an interlocutor again — not as a programme creditor but as a crisis lender through the Rapid Financing Instrument and the Rapid Credit Facility that the fund has made available to all members.

The question that Q2 2020 will begin to answer, and that cannot be answered from Q1’s vantage point, is what the recovery looks like. The pandemic’s economic damage is severe. It is also, in theory, reversible in a way that the structural damage of a financial crisis is not: the demand for Caribbean tourism has not been destroyed; it has been deferred by a mobility constraint that will eventually lift. When it lifts — and what Jamaica’s position in the Caribbean travel market looks like at that moment — will be determined by decisions made in the crisis period about maintaining the infrastructure, the workforce and the institutional relationships that the tourism machine depends on. Seven years of consecutive records built something durable. The question of how durable — tested against a shock that no one predicted and no institution had planned for — begins its answer in Q2 2020.

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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 2020: January–March 2020.

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