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Jamaican economy poised to achieve 6 to 7 % growth rate
Dennis Morrison
Wednesday, May 02, 2007
Like many other countries, the structure of Jamaica's economy has become more service oriented, and output by the services sectors now represents over 70 per cent of total production of goods and services. This shift has been driven by the expansion of activity in tourism, financial services, telecommunications, and the sectors that produce a range of infrastructure services. But it is also the result of the decline in manufacturing industries and some traditional agricultural activities, consequent on the rapid liberalisation of imports.
For some time, it has been apparent that the methodology for measuring economic output in Jamaica is in need of an overhaul. This view is shared by both the IMF and the World Bank, which have concluded in separate reports that the growth rate of our gross domestic product (GDP) is being underestimated by up to 1.5 percentage points each year, because measurements of output by the services sectors need revision. Another contributory factor is the incompleteness of output data arising from the low level of participation of businesses in the production surveys carried out by state agencies.
The tourism sector most clearly reflects these deficiencies, and the increased "informalisation" of the Jamaican economy over the past 25 years. The output of the sector falls under "miscellaneous services" in the national accounts, a strange situation, having regard to the reality that it is now the largest sector of the economy. While the manufacturing sector was reported as contributing 11.9 per cent of the total production of goods and services in 2006, the miscellaneous services sector, which includes tourism, was stated as representing 9 per cent.
There are a number of contradictions that have shown up in the growth statistics for 2006, which reflect the shortcomings in measuring activity in the local economy. For example, the output of the construction and installation sector is reported to have declined by 2.2 per cent last year, and this, superficially, could be ascribed to the decline of local cement output. In fact, cement consumption increased by 6 per cent to reach 914,766 tonnes, as imports were boosted to overcome the shortage. There is no way that output of the construction sector could have declined when consumption of cement increased by that amount. Though the shortage of cement affected activity in the construction sector, the impact was to reduce the rate of growth of the sector, but not the absolute level of its output.
Another indicator of the accelerating rate of local economic activity was the sizeable increase in imports of machinery and transport equipment. These imports went up by 31 per cent to reach US$872.3 million for the period April to December 2006. Imports of chemicals also increased significantly. The massive investment programme under way in the tourism sector, involving new hotels and other facilities, would have contributed a great deal to the rise in importation of both capital goods and raw materials.
A brief look at electricity sales by JPSCo last year also reveals that healthy increases took place in the rate categories associated with production. Sales to the power service rate 40 which represents 38 per cent of total non-residential electricity sales, increased by 3.7 per cent in terms of kilowatt hours, and the use of electricity by the large power rate 50, which accounts for 25 per cent of total non-residential electricity sales went up by 10.6 per cent. At the same time, sales to the general service rate 20 category, which has a share of 32 per cent, grew by 2.5 per cent. These data indicate that electricity consumption by the productive sectors increased by more than 4 per cent on a weighted average basis, suggesting that the economy grew at a faster rate than the officially recorded 2.5 per cent.
Another indication of the increasing pace of economic activity is the fall in the rate of unemployment. It should be noted that even in the construction sector, which is reported to have declined in 2006, the employment level was higher than in 2005 and the peak level of employment of 122,000 in July 2006 was 10 per cent above the peak in 2005. Moreover, the total employed labour force has been increasing, which means that the fall in the unemployment rate is not coming about because of a shrinking workforce.
Considering the factors discussed above, I would estimate that the Jamaican economy achieved growth of close to 4 per cent last year. This rate can be raised to 6-7 per cent in the medium term, given the investment programme being undertaken, and that the decline in interest rates which has been occurring should stimulate economic activity.
Dennis Morrison
Wednesday, May 02, 2007
Like many other countries, the structure of Jamaica's economy has become more service oriented, and output by the services sectors now represents over 70 per cent of total production of goods and services. This shift has been driven by the expansion of activity in tourism, financial services, telecommunications, and the sectors that produce a range of infrastructure services. But it is also the result of the decline in manufacturing industries and some traditional agricultural activities, consequent on the rapid liberalisation of imports.
For some time, it has been apparent that the methodology for measuring economic output in Jamaica is in need of an overhaul. This view is shared by both the IMF and the World Bank, which have concluded in separate reports that the growth rate of our gross domestic product (GDP) is being underestimated by up to 1.5 percentage points each year, because measurements of output by the services sectors need revision. Another contributory factor is the incompleteness of output data arising from the low level of participation of businesses in the production surveys carried out by state agencies.
The tourism sector most clearly reflects these deficiencies, and the increased "informalisation" of the Jamaican economy over the past 25 years. The output of the sector falls under "miscellaneous services" in the national accounts, a strange situation, having regard to the reality that it is now the largest sector of the economy. While the manufacturing sector was reported as contributing 11.9 per cent of the total production of goods and services in 2006, the miscellaneous services sector, which includes tourism, was stated as representing 9 per cent.
There are a number of contradictions that have shown up in the growth statistics for 2006, which reflect the shortcomings in measuring activity in the local economy. For example, the output of the construction and installation sector is reported to have declined by 2.2 per cent last year, and this, superficially, could be ascribed to the decline of local cement output. In fact, cement consumption increased by 6 per cent to reach 914,766 tonnes, as imports were boosted to overcome the shortage. There is no way that output of the construction sector could have declined when consumption of cement increased by that amount. Though the shortage of cement affected activity in the construction sector, the impact was to reduce the rate of growth of the sector, but not the absolute level of its output.
Another indicator of the accelerating rate of local economic activity was the sizeable increase in imports of machinery and transport equipment. These imports went up by 31 per cent to reach US$872.3 million for the period April to December 2006. Imports of chemicals also increased significantly. The massive investment programme under way in the tourism sector, involving new hotels and other facilities, would have contributed a great deal to the rise in importation of both capital goods and raw materials.
A brief look at electricity sales by JPSCo last year also reveals that healthy increases took place in the rate categories associated with production. Sales to the power service rate 40 which represents 38 per cent of total non-residential electricity sales, increased by 3.7 per cent in terms of kilowatt hours, and the use of electricity by the large power rate 50, which accounts for 25 per cent of total non-residential electricity sales went up by 10.6 per cent. At the same time, sales to the general service rate 20 category, which has a share of 32 per cent, grew by 2.5 per cent. These data indicate that electricity consumption by the productive sectors increased by more than 4 per cent on a weighted average basis, suggesting that the economy grew at a faster rate than the officially recorded 2.5 per cent.
Another indication of the increasing pace of economic activity is the fall in the rate of unemployment. It should be noted that even in the construction sector, which is reported to have declined in 2006, the employment level was higher than in 2005 and the peak level of employment of 122,000 in July 2006 was 10 per cent above the peak in 2005. Moreover, the total employed labour force has been increasing, which means that the fall in the unemployment rate is not coming about because of a shrinking workforce.
Considering the factors discussed above, I would estimate that the Jamaican economy achieved growth of close to 4 per cent last year. This rate can be raised to 6-7 per cent in the medium term, given the investment programme being undertaken, and that the decline in interest rates which has been occurring should stimulate economic activity.
Lazie Mosiah a go vote Rasta pater after this.
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