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Jamaica's top foreign exchange earners vulnerable to US recession
published: Wednesday | January 23, 2008
Richard Deane, Business Writer
Dr. Peter John Gordon, director of Economic Planning and Research, Planning Institute of Jamaica. - File
Jamaica's remittance, tourism and bauxite-alumina sectors would be the hardest hit if a recession in the United States were to occur as predicted this year, according to second in command at the Planning Institute of Jamaica (PIOJ), Dr. Peter John Gordon.
The three sectors are Jamaica's biggest foreign exchange earners, accounting for just under US$4.9 billion of inflows in 2006, and US$3.17 billion so far for the first seven months of 2007, according to the most current break-out Balance of Payments data from the Bank of Jamaica.
Much of that income originated out of the United States, Jamaica's largest trading partner and the source of 71 per cent of the island's tourism market — leaving the country exposed and vulnerable to any shocks to the U.S. economy.
But Gordon, director of the PIOJ's Economic Planning and Research Division, was cautious about predicting harm to the local economy, saying the degree of the fallout would rest on the nature of the recession and its duration.
World markets jittery
The chances of the U.S. hitting recession was estimated at 50 per cent two weeks ago. Since then, weak retail sales data atop disappointing job growth for December, and lack of confidence in a White House economic stimulus plan have made the U.S. and world markets even more jittery.
In a recession, said Gordon, job losses and general insecurity about future income would make U.S. consumers more cautious in their spending habits.
"If people there feel poorer, then they are less likely to go on vacation and more likely to cut back on the amounts they remit back home.
"I'm not saying that tourist arrivals will fall. What I would say is that they won't rise as fast as they would have in the absence of a recession," said the economist. "If the recession is deep enough, then obviously they could in fact fall."
If that happens, the immediate impact will likely be tourism jobs, said economist Errol Gregory. Gregory also agrees that remittances and tourism earnings would be the most vulnerable.
The U.S. last experienced a recession in 2001, the same year that terrorists plane-bombed New York and Washington, killing just under 3,000.
That period of business and economic downturn lasted eight months, well below the usual average for a recession in the United States of 11 months.
In that same year, Jamaica's tourist arrivals dropped to just under 2.12 million, some 5.1 per cent below the previous year and 8.2 per cent below the projections for the industry at the start of the year.
Tourism earnings were also down by 7.4 per cent that year to US$1.2 billion, according to PIOJ data.
The planning agency in its 2001 annual review of the economy then noted both the recession and the terrorist attack as the causal factors.
Bauxite earnings flat
In that same year, while crude bauxite production was up, earnings in the bauxite-alumina sector were flat at US$740 million, contained by a in volume exports of alumina and a fall in world aluminium prices.
"Bauxite is a good example of a sector that could be affected by a recession," said Gordon.
"All our bauxite is exported. If there is a recession abroad it simply means that the world economy or the markets to which we are exporting are slowing down so they don't need as much bauxite as they did before."
The PIOJ director pointed out however, that Jamaica's bauxite market was more diversified than its tourism and therefore less exposed to a U.S. recession.
"Fortunately for us a good chunk of the bauxite-alumina exports goes into other places," said Gordon. "Here is how - if you have a diversification of markets - you can ride out the recession."
Jamaica sells most of its alumina to North America, but in 2006 Canada bought the biggest chunk, 28 per cent, while the U.S. purchased 5.0 per cent; China got 20 per cent; and the Netherlands 13 per cent.
richard.deane@gleanerjm.com
Economic recession A downturn in the business cycle occasioned by real decline in output and investment and rising unemployment. For a recession to occur there must be negative economic growth, or real decline in GDP, over two or more consecutive quarters.
Provisional Balance of Payments Data
Inflows Jan-Dec 2006
Bauxite/Alumina US$1.15b
Tourism US$1.8b
Remittances US$1.93b
Total Goods Exports US$2.12b
Source: Bank of Jamaica
Provisional Balance of Payments Data
Inflows Jan-July 2007
Bauxite/Alumina US$0.815b
Tourism US$1.14b
Remittances US$1.21b
Total Goods Exports US$1.47b
Source: Bank of Jamaica
published: Wednesday | January 23, 2008
Richard Deane, Business Writer
Dr. Peter John Gordon, director of Economic Planning and Research, Planning Institute of Jamaica. - File
Jamaica's remittance, tourism and bauxite-alumina sectors would be the hardest hit if a recession in the United States were to occur as predicted this year, according to second in command at the Planning Institute of Jamaica (PIOJ), Dr. Peter John Gordon.
The three sectors are Jamaica's biggest foreign exchange earners, accounting for just under US$4.9 billion of inflows in 2006, and US$3.17 billion so far for the first seven months of 2007, according to the most current break-out Balance of Payments data from the Bank of Jamaica.
Much of that income originated out of the United States, Jamaica's largest trading partner and the source of 71 per cent of the island's tourism market — leaving the country exposed and vulnerable to any shocks to the U.S. economy.
But Gordon, director of the PIOJ's Economic Planning and Research Division, was cautious about predicting harm to the local economy, saying the degree of the fallout would rest on the nature of the recession and its duration.
World markets jittery
The chances of the U.S. hitting recession was estimated at 50 per cent two weeks ago. Since then, weak retail sales data atop disappointing job growth for December, and lack of confidence in a White House economic stimulus plan have made the U.S. and world markets even more jittery.
In a recession, said Gordon, job losses and general insecurity about future income would make U.S. consumers more cautious in their spending habits.
"If people there feel poorer, then they are less likely to go on vacation and more likely to cut back on the amounts they remit back home.
"I'm not saying that tourist arrivals will fall. What I would say is that they won't rise as fast as they would have in the absence of a recession," said the economist. "If the recession is deep enough, then obviously they could in fact fall."
If that happens, the immediate impact will likely be tourism jobs, said economist Errol Gregory. Gregory also agrees that remittances and tourism earnings would be the most vulnerable.
The U.S. last experienced a recession in 2001, the same year that terrorists plane-bombed New York and Washington, killing just under 3,000.
That period of business and economic downturn lasted eight months, well below the usual average for a recession in the United States of 11 months.
In that same year, Jamaica's tourist arrivals dropped to just under 2.12 million, some 5.1 per cent below the previous year and 8.2 per cent below the projections for the industry at the start of the year.
Tourism earnings were also down by 7.4 per cent that year to US$1.2 billion, according to PIOJ data.
The planning agency in its 2001 annual review of the economy then noted both the recession and the terrorist attack as the causal factors.
Bauxite earnings flat
In that same year, while crude bauxite production was up, earnings in the bauxite-alumina sector were flat at US$740 million, contained by a in volume exports of alumina and a fall in world aluminium prices.
"Bauxite is a good example of a sector that could be affected by a recession," said Gordon.
"All our bauxite is exported. If there is a recession abroad it simply means that the world economy or the markets to which we are exporting are slowing down so they don't need as much bauxite as they did before."
The PIOJ director pointed out however, that Jamaica's bauxite market was more diversified than its tourism and therefore less exposed to a U.S. recession.
"Fortunately for us a good chunk of the bauxite-alumina exports goes into other places," said Gordon. "Here is how - if you have a diversification of markets - you can ride out the recession."
Jamaica sells most of its alumina to North America, but in 2006 Canada bought the biggest chunk, 28 per cent, while the U.S. purchased 5.0 per cent; China got 20 per cent; and the Netherlands 13 per cent.
richard.deane@gleanerjm.com
Economic recession A downturn in the business cycle occasioned by real decline in output and investment and rising unemployment. For a recession to occur there must be negative economic growth, or real decline in GDP, over two or more consecutive quarters.
Provisional Balance of Payments Data
Inflows Jan-Dec 2006
Bauxite/Alumina US$1.15b
Tourism US$1.8b
Remittances US$1.93b
Total Goods Exports US$2.12b
Source: Bank of Jamaica
Provisional Balance of Payments Data
Inflows Jan-July 2007
Bauxite/Alumina US$0.815b
Tourism US$1.14b
Remittances US$1.21b
Total Goods Exports US$1.47b
Source: Bank of Jamaica