Economic Analysis of Jamaica

Topics: Peak oil, Inflation, Unemployment Pages: 5 (1671 words) Published: September 26, 2012
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. Jamaica’s 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 Jamaica’s 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).

Jamaica’s 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 Jamaica’s 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 Jamaica’s main economic indicators from 2008- 2010. The country’s 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 country’s 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. Jamaica’s 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.





Looking at the diagram above we are able to identify the patterns in Jamaica’s 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 country’s 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...
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