The Economic Outlook for Jamaica 2012-2014 The Jamaican economy is based on the free market model, and

has few restrictions on trade, investment and movement of currency. The major productive sectors over the years have included tourism, mining, agriculture, information technology & telecommunications, manufacturing and the entertainment sector. Jamaicas economy is presently very dependent on services, according to the CIA world fact book report of 2010, with it accounting for more than sixty (60%) of GDP. The country is also highly indebted and has a debt to GDP ratio of over 120%, indicating that based on Jamaicas GDP it is extremely difficult for the country to pay off its increasing debt. Adding to this is the IMF loan agreement which Jamaica signed in 2010, with the country borrowing an incredible $1.27 billion dollars. Jamaica is also facing a bullet payment of US$400m in 2011 in the face of a threat from Standard & Poor's (S&P) to either generate faster growth or accept a downgrade of its public-debt rating (Bullock, 2011). Jamaicas economy at present is in a very sad state and any rational investor would require some serious signs of reform and indication of potential economic growth before allowing their money to enter the Jamaican economic system. The economic analysis and forecasting which is discussed below will be extremely essential for making investment decisions in Jamaica. The starting point in our economic analysis is an investigation of Jamaicas major macroeconomic factors; this will help to determine whether the general outlook of the economy is favourable for the period 2012-2014. Some of the major indicators in focus are exchange rate, interest rate, consumer price index, GDP and BOP. These factors according to economists have the most impact on stock price movement as well as business performance in general.

In the table below adopted from the Economic Commission for Latin America and the Caribbean (ECLAC) we can identify trends in Jamaicas main economic indicators from 20082010. The countrys GDP has over these year has shown no positive growth with its highest recorded percentage growth rate being 0.0% in 2010. As it relates to the consumer prices, its annual percent growth rate was 16.9%, 10.2% and 11.2% for the years 2008, 2009, and 2010 respectively. The countrys current account for each of the years has been showing a deficit over the years, in fact Jamaica has displayed a negative balance on its current account each year since 1994, primarily as a result of large trade deficits. Jamaicas high trade deficits make it highly vulnerable to external shocks. The current account deficit is expected to widen since import spending will undoubtedly increase in queue with rising global energy prices. Another important indicator in shown in the table in the urban unemployment rate, which has been trending upwards in terms of its annual average percentage over the last three years. TABLE 1

DIAGRAM 1

Looking at the diagram above we are able to identify the patterns in Jamaicas GDP, inflation and unemployment rate from the first quarter of 2008 to the third quarter of 2010. Inflation has been fluctuating over the years showing significant increases as well as decreases, the unemployment rate has been somewhat stable being confined to a range between 9% -14%. The Gross Domestic Product(GDP) has been negative in each consecutive year a trend which can we expected to continue in the future as a result of rising imports. In terms of the countrys exchange rate, the Bank of Jamaica(BOJ) records the average rates for each year, 2008, 2009 and 2010 as follows: US$1: J$72.92, US$1: J$88.49 and US$1: J$87.38 respectively. This fluctuating trend can be expected to continue in the period 2012-2014 as the jamaican dollar is not expected to strenghten significantly in the near future. In the month of January 2011 the average exchange rate was found to be US$1: J$85.82.

Jamaica derives most of its foreign exchange from tourism, remittances, and bauxite/alumina with each accounting for approximately 10%, 15% and 10% of GDP respectively. In terms of achieving economic growth there are several challenges facing the country, including high crime and corruption, high unemployment and underemployment, and the previously mentioned high debt to GDP ratio. Moreover the country highly depends on imports for food, clothes, other consumer goods, industrial supplies, and also fuel which will have serious implications for Jamaica in the future. The Jamaican economy is at present heavily dependent on imported fuel and being a net importer of fuel the country is therefore susceptible to the instability of the world oil market - both in terms of supply and the price of oil. Jamaica is now trying to pick up the pieces and move forward after suffering from the global economic crisis. Unfortunately looking ahead the future does not seem to have a very positive outlook. There is a looming oil crisis forecasted to affect the global economy approximately in the period 2014-2015, signs of which are already present in 2011, for instance, looking at the crisis in Egypt it is a concern of many that this may have an impact on oil prices. Egypt may not be a major producer of oil but rather is a major transporter of this extremely significant world resource. There is also the possibility that the unrest in Egypt may spread to Saudi Arabia which is the worlds largest producer and exporter of oil. According to an independent oil consultant Chris Skrebowski, oil prices are expected to spike as early as 20122013 but no later than 2014-2015 and as a result hinder economic growth and triggering other economic problems. Lybia another important country in terms of supplying oil to the rest of the world has also been having unrests and as a result oil prices have already started their projected increase.

Countries worldwide have been consuming oil at a rapid pace in order to obtain the economic growth they desire. For developing nations, such as Jamaica growth is the only way to escape poverty and become stronger. It is as a result of this, that Jamaica is unlikely to give up its oil-dependent nature anytime in the near future. Nonetheless the government of Jamaica should be credited for trying to move away from this dependence, towards other alternative energy sources. Oil demand is expected to rise by 50% in 20 years, forming a serious imbalance between oil demand and supply. Many economists have already begun to question if Saudi Arabia will be able to increase its oil production to meet rising world demand in years to come. In the event that they are unable to meet this demand then a price increase in guaranteed and this will severely affect Jamaicas economy given that the country imports more than 90 per cent of its energy needs and had an oil import bill projected at US$2.5 billion in 2010. Jamaicas balance of payments, foreign reserves, rate of exchange of the Jamaican dollar, and the current account deficit could be significantly affected by a rise in oil prices. Furthermore increased energy prices also drives inflation. Jamaican consumers and businesses alike are both aware of the spill off effects of increasing energy prices on all goods and service consumed in the island. Increased energy prices results in higher electricity prices and transportation costs for the delivery of goods and services to all Jamaicans regardless of where in the island they are situated, be it urban or rural. In the event that oil prices increase then this will have implication for transportation costs, food prices as well as electricity prices. Based on an article in the Jamaica Observer of January 21, 2011, Jamaica's electricity costs are among the highest in the region, due largely to the high dependence on imported oil. In 2008, the country's oil import bill surpassed its export earnings, and this threat is expected to intensify in 2011. Jamaicans are already being warned to expect higher oil prices for the rest of the year, therefore a rise in electricity prices should not come as a

surprise. Jamaicas reliance on imported oil has resulted in a drain on foreign reserves that affect economic and social development and it also hampers the countrys ability to attract investment. As electricity demand is forecasted to more than double in the next twenty year Jamaicas economy will be greatly challenged and business men and women will find it difficult to compete international as they face increasing costs. Another significant event expected to impact the world economy in the period of review is a food crisis. Based on a report from the United Nations' Food and Agriculture Organization (FAO) in January 2011, food prices will continue to rise unless the global grain crop increases significantly in 2011. This food crisis is expected to occur at a time when global food production will have to increase by 70% by 2050 to keep up with the world's population, which will grow to 9.1 billion people from 2010's 6.8 billion. This means food import costs will also rise, and in terms of Jamaica, an economy that relies on import rather than producing to sustain the nations population this will have a drastic effect. The rising food costs are also an indication of possible inflation and high interest rates in the near future. The food crisis situation is expected to be greatly compounded due to the expected rise in international fuel prices in years to come as well as the subsequent increases in transport costs and in the prices of many fertilizers used for agricultural purposes. When fossil fuel prices rise, food prices will follow likewise. The worlds food supply will begin to decrease. Eventually what food is available will be allocated by price and if Jamaica is unable to afford the high priced commodities it will have to come up with its individual solution to sustain the population.