Economic Report (November 2013) - Victoria Mutual Wealth ...vmwealth.vmbs.com/documents/EconomicReport-Nov2013.pdf · q2 q3 q4 q1 2q2 q3 q4 q1 q2 q3 Other Services 0.7 -1.3 -0.3 0.0

1 PREPARED BY: VMWM Research Department; November 20, 2013

Economic Report (November 2013)

EXECUTIVE SUMMARY

The IMF confirmed that

Jamaica has met all its

quantitative performance

targets for the September

quarter as well as the

structural benchmarks. As a

result, Jamaica can expect to

receive the next drawdown of

funds under the Extended Fund Facility (EFF) after the IMF’s Board review in December. A positive review

should also unlock funding from multilateral agencies of approx. US$270M.

Performance in the key economic variables for the past months includes:

• Inflation in October was mainly as a result of increased prices for water and sewage

• Treasury Bill auctions reflected a continued easing of upward interest rate pressures with rates declining

slightly

• Jamaica’s economy expanded in Q3 for the first time in 6 quarters in Q2

• The unemployment rate coming out of STATIN's July survey was 15.4%, compared with 13.1% in July 2012

and 16.3% in April 2013

• The government’s fiscal deficit continued to perform ahead of budget for the year to September mainly as

a result of expenditure constraint. Revenue is performance largely in line with the budget

• The external trade deficit continued to contract mainly as a result of reduced expenditure on imports.

Earnings from exports were flat

• NIR, as at the end of October 2013, fell to US$890M eroding the gains in the previous month

• The local currency to depreviate in October, albeit at a slower pace

• The stock market continued to decline, reflecting continued disillusion with the prospects for growth.

Meanwhile, overseas confidence among US consumers in Q3 climbed to a 6-year high, according to a Nielsen

survey. The data suggests that Americans are among the most optimistic consumers in the world, although

confidence also took a by jump in Europe. However, all is not well with these economies as the Fed continues

to see the need to maintain its accommodative stance. Across the pond, the UK could consider reducing its

unemployment rate floor for continuing its monetary accommodation as it doesn’t deem the current recovery

to have gained a sufficiently robust foothold.

1 Actual as at November 19, 2013

Summary Economic

Indicators

2013

Actual (A) Projections (P)

Aug Sep Oct Nov Dec

12M PTP Inflation (%) 9.5 10.5 10.3 10.1 10.1

Interest Rates (%)

180D T-Bill (%) 8.20 7.96 7.84 7.82 8.41

30D BOJ Repo (%) 5.75 5.75 5.75 5.75 5.75

J$/US$ (Weighted Avg) 101.94 102.64 104.60 105.451 106.94

NIR (US$B) 0.88 0.91 0.89 0.80 1.20

Net Remittances (US$M) 151.0(P) 139.0(P) 145.0(P) 138.0 175.0

Economic Report (Nov-13)


DOMESTIC ECONOMIC INDICATORS

Inflation

The main impetus to inflation in October stemmed from the upward movement in the costs of water and

sewage. The ‘Transport’ division benefited from lower prices for petrol and air fares during this review month,

following its 17% increase in September.

For the 4th quarter of the calendar year, inflation is expected to normalize somewhat, although the continued

depreciation of the local currency remains a threat to local prices.

DIVISION % Change

Food and Non-Alcoholic Beverages 0.4

Alcoholic Beverages and Tobacco 1.8

Clothing and Footwear 0.2

Housing, Water, Electricity, Gas and Other Fuels 3.9

Furnishings, Household Equipment and Routine Household Maintenance 0.6

Health 0.4

Transport -0.4

Communication -0.6

Education 0.0

Restaurants and Accommodation Services 0.1

Recreation and Culture 0.3

Miscellaneous Goods and Services 1.1

All Divisions – All Items 0.8

The regional indices showed month over month increases for all 3 regions:

‘Greater Kingston Metropolitan Area’ up 0.8%,

‘Other Urban Centres’ up 0.9%, and

‘Rural Areas’ up 0.8%.

Year Month CPI Index

Monthly %

Change

Calendar YTD %

Change

Fiscal YTD %

Change

12-Month Point-To-

Point (%)

2013

May 199.5 0.5 3.6 0.9 9.1

Jun 199.9 0.2 3.8 1.1 8.7

Jul 200.9 0.5 4.4 1.6 9.7

Aug 201.6 0.4 4.7 2.0 9.5

Sep 207.2 2.8 7.7 4.8 10.5

Oct 208.9 0.8 8.5 5.7 10.3



Interest Rates

TENOR 28-Day 91-Day 182 Day

Instrument

Month T-Bill (%) BOJ CD (%) T-Bill (%) T-Bill (%)

2013

Jun 6.02 5.75 6.76 7.12

Jul 6.20 5.75 7.35 7.88

Aug 6.37 5.75 7.34 8.13

Sep 6.32 5.75 7.42 7.96

Oct 6.28 5.75 7.37 7.84

Nov 6.26 5.75 7.57 7.82

Upward pressure on interest rates showed some easing in October, with the exception of the 91-Day tenor,

which was undersubscribed.

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

J M M J S N J M M J S N J M M J S N J M M J S N J M M J S

2009 2010 2011 2012 2013

12M PTP Inflation



Gross Domestic Product

Annual Growth Rates (%) 2011 2012 2013

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32

Total Value Added at Basic Prices 2.1 0.6 1.6 -0.1 -0.2 -0.2 -0.9 -1.3 -0.1 0.6

Goods Producing 5.6 2.4 6.0 -0.2 -0.1 -1.8 -3.9 -4.5 -0.6 2.2

Agriculture, Forestry & Fishing 10.7 2.9 15.0 6.5 9.5 0.8 -6.2 -11.4 -6.6 5.0

Mining & Quarrying 33.3 7.7 8.0 -5.0 -10.2 -11.1 -10.3 -9.1 9.4 5.0

Manufacture -0.4 1.8 4.7 0.5 -1.9 0.2 -1.5 -1.6 -0.1 -0.8

Construction 1.4 1.1 0.1 -5.6 -3.4 -3.2 -2.6 0.7 1.9 2.5

Services Industry 0.9 -0.2 0.2 -0.2 -0.2 0.2 0.0 -0.1 0.0 0.1

Electricity & Water Supply 0.3 1.1 3.5 0.2 0.3 0.0 -1.8 -3.0 -2.0 -3.5

Wholesale & Retail Trade 0.0 0.1 0.7 0.9 0.3 0.3 -0.1 0.0 -0.2 0.2

Hotels and Restaurants 2.4 -0.5 0.8 0.8 4.7 2.9 -1.5 -2.3 0.6 0.8

Transport, Storage & Communication 3.3 -2.1 -1.6 -3.1 -4.1 0.1 1.2 0.6 -0.2 0.5

Finance & Insurance Services -0.1 -0.4 -0.7 0.6 0.0 1.1 1.1 0.2 0.7 0.4

Real Estate, Renting & Business Activities 0.7 0.6 0.5 -0.2 -0.2 -0.1 -0.6 0.4 0.2 N/A

Producers of Government Services 0.3 0.5 -0.5 -0.5 -0.2 -1.0 -0.1 -0.1 -0.2 N/A

2 PIOJ estimates

5

7

9

11

13

15

17

19

21

23

25

Jan

Ap

r

Jul

Oct

Jan

Ap

r

Jul

Oct

Jan

Ap

r

Jul

Oct

Jan

Ap

r

Jul

Oct

Jan

Ap

r

Jul

Oct

2009 2010 2011 2012 2013

T-Bill Yields

1-Month 3-Month 6-Month



Annual Growth Rates (%) 2011 2012 2013

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32

Other Services 0.7 -1.3 -0.3 0.0 0.3 0.2 -0.6 0.1 0.0 N/A

Growth in Q3 (July-Sep) was marginally positive reflected in improvements in the Agriculture, Forestry &

Fishing, Mining & Quarrying, Hotels & Restaurants and Construction & Installation. According to the BOJ the

response of Jamaican businesses to improvements in external demand is assessed to have been the primary

driver of the expansion as consumption is estimated to have declined due to the ongoing fiscal consolidation &

declining real incomes. The PIOJ also identified the improved weather conditions and initiatives geared at

improving productivity and output supporting growth in Agriculture, increased capital expenditure by key

public bodies and expansion in mortgages disbursed as contributing factors to the positive outturn.

For the 9-months of 2013, real GDP is estimated to have declined by 0.3%. However, with the projection of

growth in the range of 0.5%-1.5% for the December quarter (Q4), the PIOJ is estimating that real GDP will fall

within the range of 0.0%-1.0% for the calendar year 2013 and within the same range for the 2013/14 fiscal

year.

The positive perception of the short-term prospects for the Jamaican economy is based on:

• Continued strengthening of productive activities in most industries;

• Implementation of major Growth Inducing Projects and the impact of initiatives to spur productivity eg.

Agro Parks;

• Relatively low output levels recorded in 2012;

• Anticipated strengthening of confidence levels consequent on the successful completion of the 2nd IMF

quarterly review.

Unemployment

2012 2013

July October January April July

Labour Force 1,256,000 1,261,100 1,274,800 1,322,500 1,309,700

Employed Labour Force 1,094,700 1,088,200 1,093,200 1,107,400 1,111,200

Unemployed Labour Force 161,300 172,900 181,600 215,100 198,500

Outside the Labour Force 754,700 750,300 737,200 753,700 768,000

Unemployment Rate (%) 12.8 13.7 14.2 16.3 15.2

The unemployment rate coming out of STATIN's July survey was 15.4%, compared with 13.1% in July 2012 and

16.3% in April 2013. The unemployment rate for males in July was 11.7% while for females was 19.9%. The

unemployment rate among youths aged 14-24 years was 38.3%, disaggregated as male youth unemployment

of 29.5% and female youth unemployment of 50.3%.

The size of the Labour Force increased in July 2013 when compared to the prior year with the male labour force

increasing by 13,400 persons (1.9%) to 715,700 and the female labour force increasing by 17,800 (3.1%) to

594,000.



The largest increase (19.3%) in employment occurred in the ‘Real Estate, Renting and Business Activities’

industry group. This was followed by the industry group ‘Health and Social Work’ which increased by 14.3%.

Declines in employment were observed in the ‘Manufacturing’ and ‘Wholesale & Retail, Repair of Motor

Vehicle & Equipment’ industry groups that declined by 11.3% and 2.4% respectively.

GOJ Fiscal Operations

JMD Million Monthly Provisional

Sep 2013 Aug 2013 Sep 2012 MoM % Diff. YoY % Diff.

Revenue & Grants 39,574.6 26,358.3 24,629.0 50.1 60.7

PAYE 4,950.2 5,029.5 4,909.3 -1.6 0.8

Companies (ex Bauxite/Alumina) 5,925.6 326.4 5,141.6 1,715.4 15.2

GCT (Local) 5,849.5 4,423.1 2,791.2 32.2 109.6

GCT (Imports) 4,121.4 3,977.0 3,414.7 3.6 20.7

Custom Duty 2,046.1 2,102.1 1,742.8 -2.7 17.4

Expenditure 28,396.7 38,334.4 20,732.2 -25.9 37.0

Interest 6,726.1 12,038.9 2,873.7 -44.1 134.1

Fiscal Surplus 11,177.9 -11,976.1 3,896.8 193.3 186.8

Primary Surplus 17,904.0 62.8 6,770.5 28,409.6 164.4

JMD Million YTD Apr-Sep 2013

Provisional Budget % Deviation

Revenue & Grants 184,529.3 185,014.7 -0.3

PAYE 30,424.8 32,453.1 -6.2

Companies (ex Bauxite/Alumina) 13,544.4 12,744.5 6.3

GCT (Local) 31,159.4 30,699.7 1.5

GCT (Imports) 24,395.7 25,592.5 -4.7

Custom Duty 12,508.1 13,739.4 -9.0

Expenditure 191,138.0 202,026.6 -5.4

Interest 49,638.2 55,211.4 -10.1

Fiscal Surplus -6,608.7 -17,011.9 61.2

Primary Surplus 43,029.5 38,199.5 12.6

The government’s fiscal deficit & primary surplus continued to perform ahead of budget for the year to

September. Revenues were behind budget, but the government has been holding strain on expenditure to

counteract the effect.

External Merchandise Trade

Jan-Jul 2013 US$Million

2013 2012 Difference % Difference

Expenditure on Imports 3,616.7 3,829.4 -212.7 -5.6

Earnings from Exports 978.2 978.1 0.0 0.0

Trade Surplus -2,638.5 -2,851.2 212.7 7.5



The value of imports during the 1st 7 months of 2013 declined relative to the similar period last year and this

was largely attributed to the 15.8% decline in expenditure on “Mineral Fuels, etc”, in particular ‘Petroleum,

Petroleum products and related materials’ and ‘Gas, Natural and Manufactured’. Reduced imports were also

experienced in the areas of “Machinery & Transport Equipment”, “Manufactured Goods” and “Miscellaneous

Manufactured Articles”.

The flat earnings from exports reflected a decline in earnings from major traditional domestic exports such as

‘Manufacture’ (-33.4%) and an increase in Non-Traditional Exports earnings (3%) such as “Chemicals (inc.

Ethanol)”.

Net International Reserves

NET INTERNATIONAL RESERVES

Year Month Stock (USD M) Monthly ∆ (USD M)

Gross Reserves in

Weeks of Goods

Imports

Gross Reserves in

Weeks of Goods &

Services Imports

2013

May 988.86 122.68 17.47 13.20

Jun 1,003.22 14.36 16.73 12.63

Jul 929.72 -73.50 16.07 12.06

Aug 881.60 -48.12 14.96 11.22

Sep 910.14 28.54 15.78 11.88

Oct 890.43 -19.71 15.90 11.97

Given the successful conclusion of the IMF’s 2nd review of Jamaica’s performance under the Extended Fund

Facility (EFF), we can anticipate a confirmation by the IMf’s Board in December. This will facilitate a drawdown

of approx. US$30M and will facilitate the release of approx. US$270M of additional financing from the IDB and

the World Bank. These amounts should provide a boost to the NIR by year end.



Exchange Rates

EXCHANGE RATES – October 2013

Rate per unit of

FX

Change (%)

1-Month 12-Month YTD

JMD/USD 104.60 -1.91 -13.34 -11.42

JMD/GBP 169.78 -4.01 -13.91 -11.13

JMD/CAD 101.93 -2.52 -9.42 -7.87

The local currency continued to depreciate in October, albeit at a slower pace against its major trading

currency, the USD. The deficit on the current account of the balance of payments continued to drive

depreciation in the exchange rate for US dollars, as demand for foreign exchange to pay for imports of goods

and services continued to exceed export flows by a considerable margin. Seasonally higher demand for imports

of raw materials and consumer goods contributed to the pressure in the foreign exchange market.

5.00

10.00

15.00

20.00

25.00

30.00

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

Jul

Jan

Jul

Jan

Jul

Jan

Jul

Jan

Jul

Jan

Jul

Jan

Jul

Jan

Jul

Jan

Jul

Jan

Jul

Jan

Jul

Jan

Jul

20022003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

We

ek

s of G

oo

ds &

Se

rvice

s Imp

orts

US

$M

NIR Gross Res in Weeks Benchmark Gross Res in Weeks



120

130

140

150

160

170

180

70

75

80

85

90

95

100

105

110

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep

2012 2013

JMD

/GB

P

JMD

/US

D,J

MD

/CA

DJan 2012- Oct 2013

JMD/USD JMD/CAD JMD/GBP



Stock Market

Main Market

The Main market continues to reflect

negative sentiments towards the stock

market and its prospects. Indeed, if we

accept that the stock market is a leading

economic indicator, it is indicating further

economic difficulties ahead. Given the

positive GDP growth news circulating in the

market and the expectation that confidence

could begin trickling back in once the IMF

has issued its 2nd quarter review, it is hoped

that this could lead to a turnaround for the

stock market.

Junior Market

With the benefit from the 10 year tax relief

programme set to expire on December 31,

2013, the rush is on for companies

considering listing to come to market

sooner rather than later. Already, one

company has issued its prospectus and

others are expected to follow suit. The

announcement of the expiration of the tax

benefit has resulted in a fall off in equity

prices on the Junior market, eroding gains

made earlier in the year.

Stock Market Summary- November 20, 2013

Index Value % Change (YTD)

Main Index 77,001.06 -16.40

JSE Select 2,064.73 -17.07

All Jamaican 75,674.02 -16.99

Junior Market 705.23 8.87

US 85.71 26.30

TTSE Composite 1,185.70 11.33

BSE Local 2,978.06



OVERSEAS ECONOMIC OVERVIEW

North America

House prices in America's 20 biggest cities rose 12.8% in August compared with August 2012, according to the

S&P/Case-Shiller index.

Confidence among US consumers in Q3 climbed to a 6-year high, according to a Nielsen survey. The data

suggests that Americans are among the most optimistic consumers in the world, although confidence also took

a by jump in Europe. Despite this, more people in the US reported giving up their search for work, bringing

labour force participation down to 62.8%, the smallest figure since March 1978. The unemployment rate edged

up from 7.2% to 7.3%.

The US Treasury Department is planning to sell floating-rate notes beginning January 29. According to the

Federal Reserve Chairman, the benchmark interest rate will stay close to zero even after its bond-buying

programme ends and the unemployment rate falls to 6.5%.

Europe

Joblessness in the eurozone remained at a record 12.2%, although there are signs the economy is improving.

Greece & Spain had the highest rates, topping 26%, while unemployment in Austria & Germany is 5%. The

European Central Bank cut its interest rate to 0.25% amid concerns about low inflation, surprising many

analysts. The Bank of England has held its benchmark interest rate at 0.5%. Governor Carney has said the

central bank will not consider an increase until unemployment is below 7%, which may come as early as next

year.

Portugal is eyeing a debt exchange because of growing investor demand for its debt. In October 2012, Portugal

exchanged about EUR4B of debt maturing in Sep 2013 for bonds coming due in Oct 2015. S&P cut France's

credit rating to AA from AA+ based on doubts that policies of President Hollande will increase growth

significantly or make the government run more efficiently.

Ireland's budget for 2014 will continue to reduce the deficit & debt and position the nation to exit its

international rescue. Ireland has passed its final rescue review, according to the European Central Bank, the

European Commission & the IMF, setting the nation up to return to debt markets in 2014.

Asia

Japan's GDP grew at an annualized rate of 1.9% in Q3, half the 3.8% expansion in Q2. Exports fell 0.6% due to

weakening demand among Japan's trading partners in Asia. An increase in Japanese producer prices suggests

the Bank of Japan is succeeding in pushing the inflation rate up to 2% within 2 years.

Latin America

Venezuela's inflation rate was 5.1% in October, bringing price increases for the year to 45.8%, according to the

central bank. The annualized rate stood at 54.3%. Venezuela's scarcity index reached a record high, indicating

difficulty in finding basic goods.



IMPLICATIONS FOR JAMAICA

The BOJ Governor indicated at the Bank’s recent press briefing that it expects to maintain the current

accommodative monetary policy stance. Of note is that the BOJ began to utilize a new monetary policy tool to

inject liquidity into the system, that of a 14-day repurchase agreement, intended to provide liquidity on a

regular cycle to financial institutions to enhance their ability to manage their liquidity. Governor Wynter also

indicated that the Bank will be using other mechanisms going forward in line with the tools used in other

(developed) economies. This is to support the Bank’s commitment to achieving the inflation target within the

context of a flexible exchange rate regime. That the economy may have experienced positive growth could be a

sign that these actions are bearing fruit. It is encouraging to hear the rhetoric of “expansionary monetary

policies” particularly within the context of a protracted period of contractionary fiscal policies and austerity.

Given that the governor cited weak domestic demand as being a drag on economic growth, it is hoped that

these actions will be able to stimulate economic activity going forward.

Sources: Statistical Institute of Jamaica (STATIN), Planning Institute of Jamaica (PIOJ), Ministry of Finance, Bank

of Jamaica, International Monetary Fund (IMF), NHK World (Japan), Market News International, The Wall Street

Journal, Bloomberg, Forbes, The Irish Times (Dublin), BBC, El Universal (Venezuela)

Disclaimer: This Research Paper is for information purposes only. The information stated herein may reflect the opinion

and views of VM Wealth Management in relation to market conditions and does not constitute any representation or

warranties in relation to investment returns and the credibility of the sources of information relied upon in the preparation of

this report, without further research and verification. Before making any investment decision, please consult a VM Wealth

Management Advisor.

Documents

Economic Report (November 2013) - Victoria Mutual Wealth ...vmwealth.vmbs.com/documents/EconomicReport-Nov2013.pdf · q2 q3 q4 q1 2q2 q3 q4 q1 q2 q3 Other Services 0.7 -1.3 -0.3 0.0