Jamaica Economic Intelligence | Annual Review 2023 | January–December 2023
Key Findings
- The Federal Reserve holds rates at 5.25–5.50 percent through the year’s final quarter after the July terminal hike, completing a tightening cycle of 525 basis points total — the most aggressive since Volcker — while the US economy delivers the “soft landing” that the cycle’s severity had seemed to preclude: GDP growth above 2 percent, unemployment near fifty-year lows, and inflation declining from 6.4 percent in January to 3.4 percent by December
- Three major US bank failures in Q1 — Silicon Valley Bank, Signature Bank, First Republic — are resolved without systemic crisis through FDIC intervention and the Federal Reserve’s Bank Term Funding Program; the banking stress episode is the cycle’s most concrete demonstration that rapid rate increases produce casualties, and the BTFP’s resolution is a case study in effective crisis containment
- Jamaica’s tourism sector delivers its most complete year since the pandemic: full-year 2023 stopover arrivals meet or exceed 2019’s record, hotel revenue per available room remains above pre-pandemic levels, and the Jamaica Tourist Board’s data confirms that the recovery has become a new stable baseline rather than a post-pandemic rebound
- The Bank of Jamaica begins its easing cycle in the final quarter of 2023, cutting its policy rate for the first time since the tightening cycle began in August 2021, as domestic CPI returns durably toward the 4–6 percent target band and the external rate environment has stabilised at its peak
- Artificial intelligence transitions from a technology demonstration to an investment phenomenon: Nvidia’s revenue and profit guidance in May reshapes global semiconductor and technology valuations, the Nasdaq composite enters a bull market, and every major corporation announces AI integration strategies whose productivity implications for the labour markets that Jamaica’s diaspora depends on are now a medium-term planning assumption
- Jamaica’s fiscal performance through 2023 confirms the reform architecture’s resilience: the primary surplus is maintained despite the higher external debt servicing costs produced by the global rate environment, debt-to-GDP continues its decade-long decline, and the IMF’s programme assessments reflect an institution satisfied that the framework is operating as designed
It is December 2023. A year that opened with a bank run the size of which the technology sector had never seen — $42 billion leaving Silicon Valley Bank in a single Thursday, transferred digitally at a speed that no prior bank run in history had approached — is closing with the Federal Reserve having navigated its most aggressive tightening cycle since Volcker without producing the recession that every prior cycle of comparable pace had delivered. The soft landing that economists had debated as possible is, at year’s end, looking like the actual outcome: inflation from 6.4 percent to 3.4 percent, unemployment from 3.4 percent to 3.7 percent, GDP growth positive through every quarter. In Jamaica, the year that was supposed to test whether the tourism recovery was structural or transient has answered: the 2019 record is equalled or exceeded. The tightening cycle that was supposed to test whether the BOJ’s framework was strong enough to handle the most challenging external environment since the reform period began has answered: it was. The year the questions were resolved is now ending, and the year the answers are built upon is beginning.
The Soft Landing: How the US Economy Defied the Cycle
The Federal Reserve raised interest rates by 525 basis points over sixteen months, from March 2022 through July 2023, at a pace without precedent in the modern era. The consensus view among economists through most of 2022 and into 2023 was that such a pace of tightening would produce a recession: that the lag effects of monetary policy, operating through the housing market, the credit channel, the labour market, and business investment, would produce the demand destruction that excessive price increases required, and that demand destruction sufficient to reduce inflation would be demand destruction sufficient to produce several quarters of negative GDP growth. The consensus was wrong. The US economy grew at an annualised rate above 4 percent in Q3 2023, with full-year GDP growth for 2023 running well above 2 percent, and unemployment ending the year at 3.7 percent — barely above the fifty-year lows established at the tightening cycle’s outset.
The explanation for the soft landing’s achievement — to the extent it can be assigned rather than attributed to the combination of factors that economic outcomes always reflect — lies in the unusual character of the 2021–2022 inflation surge. An inflation surge driven primarily by supply disruptions, commodity shocks and the goods-price consequences of pandemic-era demand distortions does not require the same demand destruction to resolve as an inflation surge driven primarily by excess aggregate demand. When the supply disruptions resolve — when shipping containers move again, when semiconductor production catches up with automobile demand, when energy prices normalise after the initial Ukraine shock premium fades — the goods inflation they produced reverses mechanically, without requiring the Fed to destroy sufficient demand to produce a recession. The services and wage inflation that supply-side disinflation leaves behind is more persistent, but it too decelerates as the labour market tightness that had driven it moderates. The Fed’s rate increases contributed to that moderation; they did not need to produce a recession to produce an inflation return toward target.
For Jamaica, the soft landing’s achievement was the most important external economic development of 2023. The scenarios that the 2022 and early 2023 reviews had identified as Jamaica’s primary external risks — a US recession that reduced the American consumer’s discretionary travel budget, a credit crunch that tightened the diaspora’s employment and income, a financial system crisis that produced the kind of global risk-off event that damages small open economies’ external financing conditions — did not materialise. The US economy’s resilience was Jamaica’s resilience by transmission: through the tourism channel that the American consumer’s sustained spending capacity supported, through the remittance channel that the diaspora’s continued employment sustained, and through the capital account channel that the US economy’s avoidance of crisis kept open.
The Banking Stress: Three Failures, No Systemic Crisis
The three major US bank failures of Q1 2023 — Silicon Valley Bank on March 10, Signature Bank on March 12, First Republic Bank on May 1 — were the most significant banking sector stress since the 2008 financial crisis, and the resolution of that stress without systemic consequences was among the year’s most significant policy achievements. Each failure followed a common logic: long-duration assets purchased at 2020–2021 near-zero rates that became underwater at 2023’s 5 percent rates, concentrated depositor bases whose shared information networks accelerated withdrawal dynamics, and liquidity positions inadequate to meet the resulting outflows. The common logic produced a common resolution template: FDIC closure, a weekend sale to an acquiring institution, and depositor protection that, particularly in SVB’s and First Republic’s cases, extended above the $250,000 statutory insurance limit.
The Federal Reserve’s Bank Term Funding Program — announced the weekend of SVB’s closure and operational through the year — was the systemic containment mechanism that prevented the three failures from cascading into a broader banking sector crisis. The BTFP allowed banks to borrow against the face value of their Treasury and agency security holdings rather than their market value, eliminating the SVB dynamic — unrealised losses becoming realised losses under depositor withdrawal pressure — for any institution that chose to use the facility. Banks used the BTFP extensively through 2023, and the facility’s existence removed the “held-to-maturity at par” fiction’s fragility from the sector as a whole. The 2024 discontinuation of the BTFP would be possible precisely because the facility had bought time for the rate cycle to begin reversing and for banks’ unrealised loss positions to improve.
Jamaica’s Tourism Year: The Record Confirmed
The Jamaica Tourist Board‘s full-year 2023 data confirmed what the advance booking and interim arrival data through three quarters had been pointing toward: total stopover arrivals for 2023 met or exceeded the 2019 record of approximately 2.68 million visitors, making 2023 the first year since the pandemic began in which the island’s most important economic sector achieved or surpassed its pre-pandemic peak performance. The achievement was the product of three consecutive years of recovery momentum — 2021’s initial rebound, 2022’s strong full-year performance, 2023’s confirmation of the new baseline — that had survived a global inflation shock, an aggressive monetary tightening cycle, a banking sector stress episode, and a US consumer whose real purchasing power had been eroded by two years of inflation running above wage growth.
The revenue picture accompanying the arrival record was, if anything, more impressive than the volume story. Hotel revenue per available room across Jamaica’s major resort corridors ended 2023 above 2019 levels in nominal terms — maintaining the pricing premium over the pre-pandemic baseline that the recovery’s strong demand had established and the supply constraints of three years of suppressed construction had sustained. The pricing premium’s persistence into the third year of recovery, against a US consumer facing real wage erosion and the headwinds of student loan repayment resumption, was the data that most directly confirmed the structural character of the recovery: Jamaica’s tourism product had established a place in the American consumer’s discretionary budget that was resistant to moderate economic stress in a way that the pandemic’s experience had suggested was possible but that three years of data were needed to confirm.
The year’s tourism performance had direct consequences for Jamaica’s fiscal and macroeconomic outcomes. The employment and income generated by near-record arrival volumes supported the tax revenue base that the fiscal framework depends on; the NHT contributions from hospitality employment supported the mortgage financing flows that the property market depends on; the foreign exchange earnings from tourism spending supported the JMD exchange rate management that the Bank of Jamaica‘s FX intervention framework depends on. Tourism’s recovery was not merely a sector story in 2023; it was the foundation of the macroeconomic story, in the same way that tourism’s collapse in 2020 had been the mechanism through which the pandemic’s macroeconomic damage was primarily transmitted.
The BOJ’s Pivot: Framework Confirmed, Easing Begun
The Bank of Jamaica’s decision to begin cutting its policy rate in Q4 2023 — the first reduction since the tightening cycle began in August 2021 — was the institutional signal that the cycle had fulfilled its purpose: domestic inflation had returned toward the 4–6 percent target band, the external rate environment had stabilised at its peak, and the balance of risks had shifted from inflation persistence toward the growth implications of maintaining restrictive monetary conditions beyond what the price data required. The BOJ’s cut was modest — consistent with the institution’s framework-driven, data-dependent approach — but its signal value was large: after nine consecutive quarterly rate decisions that either raised the rate or held it near its high, the direction had changed.
The BOJ’s framework performance through the 2021–2023 tightening cycle merits explicit assessment. The institution began tightening in August 2021, ahead of the Federal Reserve and ahead of many of its peer central banks in the Caribbean region, in response to domestic inflation that its framework identified as moving materially above target. The tightening cycle was conducted through a period of exceptional external complexity — the Russia-Ukraine commodity shock, the global banking stress, the 10-year Treasury moving to 5 percent — without requiring the kind of emergency measures or framework departures that characterise institutional fragility. The JMD maintained its managed depreciation path without the disorderly episodes that external shocks of comparable magnitude had produced in prior cycles. The primary fiscal surplus was maintained without the BOJ’s monetary policy being required to substitute for fiscal adjustment. The inflation return toward target happened, broadly, on the timeline the framework’s models had projected once the commodity shock’s imported inflation effects began to dissipate. The BOJ exited 2023 with its institutional credibility intact and its framework’s design validated by the cycle’s outcome.
The AI Year: Investment, Disruption, and the Long Question
The artificial intelligence narrative that Q1’s GPT-4 release had ignited became the defining investment and corporate strategy story of 2023’s second and third quarters, with implications that extended well beyond the technology sector into the broader labour market dynamics that determine the diaspora’s remittance capacity and the Jamaican economy’s medium-term exposure to externally generated disruption. Nvidia’s May earnings shock — revenue guidance so far above consensus estimates that the semiconductor sector’s valuation models required fundamental revision — quantified the AI buildout in a way that moved the conversation from narrative to financial: the companies supplying compute infrastructure to the AI investment wave were generating revenue at scales that validated the investment thesis before the downstream productivity effects were visible in any economic data.
The year ended with two AI-adjacent stories that point in opposite directions for Jamaica’s diaspora exposure. The positive story: the US labour market, despite the technology sector’s continued layoffs and AI-driven workforce rationalisation at major corporations, remained historically tight through December 2023. Aggregate unemployment at 3.7 percent, real wages positive, consumer spending resilient — the AI disruption thesis, accurate in its directional prediction about specific employment categories, had not yet produced the aggregate labour market damage that a more rapid deployment rate might have generated. The negative story: the employment categories most affected by the AI rationalisation — product management, marketing, operations, legal and financial administrative support — overlap significantly with the professional roles occupied by college-educated diaspora Jamaicans in the United States. The gap between the aggregate data’s stability and the specific experience of diaspora workers in affected roles is the dynamic that 2024 will either resolve or deepen.
What This Means
Homeowners enter 2024 in a property market whose fundamental drivers have aligned in their favour for the first time since the tightening cycle began. The BOJ’s Q4 2023 rate cut is the first concrete signal that the financing cost environment is moving in the direction the property market has been waiting for; the rate cuts that follow — the pace and extent of which will be determined by the 2024 inflation data — will progressively ease the NHT and commercial mortgage rates that have constrained buyer qualification since 2021. The supply gap that three years of suppressed construction has widened — development pipelines deferred through the tightening cycle’s uncertainty — will take multiple years to close even if the development activity accelerated by Q3 2023’s demand confirmation reaches completion on schedule. The market that homeowners enter in 2024 is one where the rate direction is favourable, the supply is constrained, and the demand base — sustained by tourism employment recovery and real wage gains — is the strongest it has been since 2019.
Renters in Jamaica’s resort parishes end 2023 with the strongest real economic position the recovery has produced. Three consecutive years of near-record or record tourism arrivals have translated into three years of sustained hospitality employment, and the combination of nominal wage gains and declining inflation has produced real wage increases that are, by late 2023, meaningfully positive for the tourism sector’s workforce. The rate cuts beginning in Q4 mean that the NHT contributions deducted from those wages are building toward mortgage qualification at financing terms that are improving rather than deteriorating — a reversal that the renter who has been accumulating savings through the recovery can begin to factor into homeownership planning. The structural constraint remains affordability: Jamaica’s property market prices, while below the absolute levels of comparable Caribbean markets, have risen materially through the recovery period, and the gap between what the NHT’s contribution scale and commercial lending terms can finance and what the market charges for entry-level properties in resort-adjacent communities is a structural challenge that the rate cycle’s easing will help but not resolve.
Developers enter 2024 with the year’s most important uncertainties resolved in their favour. The demand case: confirmed by 2023’s record arrival year and the revenue data showing pricing power sustained into the recovery’s third year. The rate environment: peaked and turning. The construction cost structure: normalised from the 2021–2022 commodity shock highs. The financing environment: easing from the BOJ’s tightening cycle peak. The development calculus that was most difficult in 2022 — when demand was recovering but rates were rising, costs were elevated, and every underwriting assumption was being revised upward each quarter — is now running in the opposite direction: demand confirmed, rates declining, costs stable. The pipeline of deferred projects that prudent developers maintained through the uncertainty of 2022–2023 is the inventory of opportunity that 2024’s improved environment makes viable to execute.
Businesses across Jamaica end 2023 with the clearest revenue visibility and the most favourable cost environment since the pandemic. Tourism revenue is at or above 2019’s record level. Energy costs are well below 2022’s Russia-shock peak. Food import costs have normalised. Supply chain disruption premiums are resolved. The BOJ’s rate cycle is turning. The businesses best positioned for 2024 are those that used the 2022–2023 cost pressure environment to undertake the operational improvements — energy efficiency investments, procurement rationalisation, staffing model adjustments — that the now-more-favourable cost environment will reward with margin recovery. The risk for 2024 is market share: the recovery that has confirmed Jamaica’s tourism baseline at near-2019 levels has also confirmed that the market is competitive, that new supply is entering, and that the pricing premium over 2019 that the tight supply of 2021–2022 supported is narrowing as supply catches up to sustained demand.
Diaspora Jamaicans in the United States end 2023 in the paradox that the year’s data has revealed: aggregate economic indicators (unemployment, real wages, consumer spending) at or near their strongest readings of the post-pandemic period, while the specific employment categories most relevant to the college-educated diaspora (technology-adjacent professional services, administrative roles) are experiencing the most significant structural disruption since the 2008–2009 recession. The median diaspora worker — in healthcare, logistics, retail, food service, construction — is in the best economic position since the pandemic began. The diaspora worker in technology product management or corporate legal services is navigating a labour market that is structurally less favourable than it was two years ago, and whose trajectory the AI investment wave suggests will become less favourable still over the medium term. Remittance flows to Jamaica through 2023 have remained consistent with the elevated post-pandemic baseline, a resilience that reflects the aggregate picture more than the specific professional experience of the most-affected diaspora segment. Whether 2024’s AI deployment acceleration changes the aggregate picture is the question the series will be tracking.
Outlook: 2024
2024 opens with the most constructive combination of conditions Jamaica’s economic planning has faced since before the pandemic. The tourism recovery is confirmed and structural. The BOJ’s easing cycle has begun. The external rate environment has stabilised. The US economy has achieved its soft landing. The development pipeline that three years of recovery demand confirmation should rationally support is beginning to move. The question is not whether Jamaica’s structural foundations are sound — the reform architecture and its performance through the 2021–2023 stress test have answered that — but whether the next phase of growth, investment and development that the confirmed recovery enables can be built on those foundations at the pace that Jamaica’s housing supply deficit, infrastructure gaps and employment opportunity requirements demand.
The external risks for 2024 are real but different in character from 2022’s and 2023’s. A US recession is not the leading scenario, but the mechanisms through which one could arrive — consumer balance sheet stress from student loan resumption and credit card delinquency normalisation, commercial real estate sector stress from the 10-year yield’s move to 5 percent, corporate credit stress from the refinancing of 2020–2021 zero-rate debt at 2024’s higher rates — are operating in ways that will produce data through 2024 that tests the soft landing’s durability. The AI disruption’s labour market effects on diaspora employment are a medium-term rather than immediate risk, but the speed of deployment in 2023 makes the medium term shorter than prior technology transitions had suggested. And the geopolitical environment — Russia’s war in Ukraine now entering its third year, the Middle East conflict that erupted in October 2023, the US election year’s policy uncertainty — is more complex than any year since the pandemic began.
Against those risks, Jamaica’s 2024 starting position is stronger than at any prior comparable moment in the series’ history. The structural foundations that the reform period built, the BOJ’s framework that the tightening cycle validated, the tourism recovery that three years of data confirmed, the fiscal trajectory that the primary surplus has sustained — these are the assets with which Jamaica enters 2024. The year ahead will test whether they are strong enough to support the next phase of growth that the completed recovery makes possible.
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 the full year 2023: January–December 2023.
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