• Fitch Solutions expects that falling inflation and unemployment will keep the threat of popular discontent low in the first half of 2023.
• As estimated, headline inflation has started to come down in December to 9.3% y-o-y after the brief 10.3% uptick seen in November. It is expected that inflation will continue moderating through 2023, averaging 7.1 y-o-y, from 9.7% in 2022, supporting social stability.
• Further, a recovering tourism industry will continue to support employment levels. It is anticipated that the labour market will remain tight through H1 2023 before moderating in the latter half of the year as the global slowdown takes hold and affects Jamaica’s key tourism markets like the US. The H223 increase in unemployment underpins the agency’s forecast of average unemployment of 6.5% in 2023, modestly up from an average of 6.2% in 2022.
• Fitch has kept its Short-Term Political Risk Index (STPRI) at 72.7 out of 100, as inflation has already started coming down, supporting social stability. The ‘policy continuity’ component remains the highest at 85.0 as the JPL holds a majority in the Jamaican Parliament there are few threats to the government's policy agenda before the next general election, which is not required until 2025.
• Furthermore, although there was an uptick in violent crime and the number of murders in 2022, the government’s clampdown on violent crime has driven a decline in murders in January 2023. It is anticipated that the government will continue to take steps to combat crime in the months ahead, supporting the security/external threats component, which remains at 70.0.

(Source: Fitch Solutions)

• Peru's consumer prices rose less than expected in January despite the impact of growing political tensions, but the 12-month rate ticked up as the Andean nation battles the highest inflation in a quarter of a century, with fresh rate hikes still on the table.
• Peru’s government data showed on Wednesday, February 1, 2023, that consumer prices in the Lima metropolitan region, seen as the national benchmark, were up 0.23% in the first month of the year, well below the median forecast of 0.43% in a Reuters poll of economists.
• The recorded consumer prices were the lowest monthly increase since January of last year, slowing from the 0.79% rise seen in the previous month, although not enough to prevent annual inflation from hitting its highest since July.
• Data from statistics agency Instituto Nacional de Estadística e Informática (INEI) showed that consumer prices rose 8.66% in the 12 months through January, remaining near a quarter-century peak reached last year, though below a projection made by Economy Minister Alex Contreras last month (the minister estimated that annual inflation could close in January between 8.8% and 8.9% depending on how communications were restored after protests and road blockades pushed up food prices).
• The latest monthly inflation increase was mainly due to higher food and non-alcoholic beverage costs and rising hotel and restaurant prices, INEI said in a report. Decreasing transportation costs partially offset those increases.

(Source: Reuters)

• Fitch forecasts that the Bahamian economy’s post-pandemic recovery will lose some steam in 2023, but growth will remain robust at 4.0% in 2023, following an estimated 8.1% expansion in 2022.
• That said, headline growth will remain above the 2015-2019 average trend of 1.4%, as continued recovery in the tourism sector will support growth in exports and household incomes.
• Average headline inflation is forecasted to remain elevated in 2023 at 4.5%, from an estimated 5.6% in 2022, further draining household purchasing power and weakening overall private spending. 
• Also, higher-than-expected fuel prices could cause inflation to remain sticky through 2023, which could also dampen private consumption growth, posing downside risks to Fitch’s outlook.
• Overall, private consumption will contribute 3.2 percentage points (pp) to headline growth in 2023, down from 9.0 pp in 2022.

(Source: Fitch Solutions)

• The number of Americans filing new claims for unemployment benefits dropped to a nine-month low last week as the labour market remains resilient despite higher borrowing costs and mounting fears of a recession this year. The surprise decline in weekly jobless claims reported by the Labour Department on Thursday raised cautious optimism that the economy could skirt a recession or just experience a shallow and short downturn.
• Federal Reserve Chair Jerome Powell told reporters on Wednesday that "the economy can return to 2% inflation without a really significant downturn or a big increase in unemployment." The U.S. central bank raised its policy rate by 25 basis points to the 4.50%-4.75% range and promised "ongoing increases" in borrowing costs.
• Initial claims for state unemployment benefits dropped 3,000 to a seasonally adjusted 183,000 for the week ended Jan. 28, the lowest level since April 2022. Economists polled by Reuters had forecast 200,000 claims for the latest week. Outside the technology industry and interest-rate-sensitive sectors like housing and finance, employers have been reluctant to lay off workers after struggling to find labour during the pandemic, and also because they are optimistic economic conditions will improve later this year.
• Despite labour market tightness, wage inflation is slowing and could continue doing so as a third report from the Labour Department showed worker productivity accelerating at a 3.0% annualized rate in the fourth quarter, the fastest in a year, after rising at a 1.4% pace in the third quarter. Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies, and U.S. Treasury yields fell.

(Source: Reuters)

• Europe’s two largest central banks raised interest rates sharply on Thursday, opting for bigger increases than the US Federal Reserve as inflation in the region remains near historically high levels.
• The European Central Bank (ECB) and the Bank of England lifted rates by another half a percentage point. Benchmark interest rates for both are at their highest levels since 2008. While the Federal Reserve eased up on rate hikes on Wednesday, delivering just a quarter-point increase as it judged that it was making progress in its battle against inflation.
• The ECB said it expected to raise interest rates further and intended to hike them by another half a percentage point in March. Although inflation in the 20 countries that use the euro slowed in January, at 8.5%, it remains far above the bank’s 2% target. Speaking to reporters after the announcement, ECB President Christine Lagarde noted recent steep falls in energy prices but said the fight to tame inflation had further to go.
• UK inflation has also eased, coming in at 10.5% in December, but remains near a 41-year high. The Bank of England has a particularly tough job on its hands: prices are rising rapidly while at the same time, the United Kingdom faces a risk of recession, and rate hikes act to dampen both inflation and economic growth. 
• On Tuesday, the International Monetary Fund forecast that the United Kingdom would be the only major economy to contract this year. “The labour market remains tight and domestic price and wage pressures have been stronger than expected, suggesting risks of greater persistence in underlying inflation,” the bank said in a statement.

(Source: CNN)

• For December 2022, output prices for producers in the Mining and Quarrying industry increased by 0.6% while for the Manufacturing industry prices declined by 1.6% as indicated by the Statistical Institute of Jamaica (STATIN).
• The movement in the Mining and Quarrying industry index was mainly attributed to a 0.6% increase in the index for the major group ‘Bauxite Mining & Alumina Processing’. This was due primarily to the depreciation of the Jamaican dollar against the US dollar.
• The main contributors to the decline in the Manufacturing index were the ‘Refined Petroleum Products’ group, which fell by 9.0%, and ‘Chemical and Chemical Products’ which declined by 1.1%.
• The decline in the index for ‘Refined Petroleum Products’ was due to lower prices for crude on the international market, while the movement in the index of the ‘Chemical and Chemical Products’ group was attributed to the lower cost of raw materials. The fall in the index was, however, tempered by a 0.3% increase in the index for the heaviest weighted major group ‘Food, Beverages& Tobacco'.
• For the period December 2021 – December 2022, the Mining & Quarrying index fell by 22.1% while the point-to-point movement for the Manufacturing index increased by 11.2%. The three major groups contributing to the movement in the Manufacturing industry were ‘Refined Petroleum Products (12.6%), ‘Food, Beverages & Tobacco’ (12.5%), and ‘Chemical and Chemical Products (9.4%).
• The fall in the Mining and Quarrying Index was largely due to the decline in prices for Bauxite and Alumina on the international market during 2022.

(Source: STATIN)

• Fitch continues to expect that Brazilian real GDP growth will slow sharply in 2023, to 1.0% from an estimated 3.0% in 2022, as elevated interest rates and weaker external demand take their toll.
• Additionally, the agency expects that growth in Q422 will come in at 2.5% y-o-y (-0.2% q-o-q, seasonally adjusted), from 3.6% (0.4%) in Q322 a high-frequency data for the quarter suggests that activity has continued to deteriorate. In annual terms, Fitch’s 2022 estimate is down slightly from 3.1% previously.
• Most notably, the statistics agency (IBGE)’s economic activity index slipped from 4.5% y-o-y in September to 3.7% in October and 1.6% in November, while marking three consecutive months of negative month-on-month growth.
• However, solid fundamentals for private consumption and increased demand from Mainland China will prevent a sharper slowdown for Brazil. This bodes well for Marfrig’s performance in the near future given the increased demand from China, which is a major export market for the company.
• The most recent data suggests that Brazil’s private consumer remains fairly healthy in the near term, reflected in Fitch’s forecast for private consumption to lead all components with a 1.0 percentage point (pp) contribution to growth. Also, Brazil’s unemployment rate slipped to 8.1% in November 2022, the lowest level since February 2015, while consumer and services sector business confidence surveys are solid by post-pandemic standards, though down from highs earlier in the year.

(Source: Fitch Solutions)

• The International Monetary Fund on Tuesday raised its 2023 global growth outlook slightly due to "surprisingly resilient" demand in the United States and Europe, an easing of energy costs and the reopening of China's economy after Beijing abandoned its strict COVID-19 restrictions.
• The IMF said global growth would still fall to 2.9% in 2023 from 3.4% in 2022, but its latest World Economic Outlook forecasts mark an improvement over an October prediction of 2.7% growth this year with warnings that the world could easily tip into recession.
• In its 2023 GDP forecasts, the IMF said it now expected U.S. GDP growth of 1.4%, up from 1.0% predicted in October and following 2.0% growth in 2022. It cited stronger-than-expected consumption and investment in the third quarter of 2022, a robust labour market and strong consumer balance sheets. It said the eurozone had made similar gains, with 2023 growth for the bloc now forecast at 0.7%, versus 0.5% in the October outlook, following 3.5% growth in 2022.
• The IMF said Europe had adapted to higher energy costs more quickly than expected, and an easing of energy prices had helped the region. Britain was the only major advanced economy the IMF predicted to be in recession this year, with a 0.6% fall in GDP as households struggled with rising living costs, including for energy and mortgages.
• For 2024, the IMF said global growth would accelerate slightly to 3.1%, but this is a tenth of a percentage point below the October forecast as the full impact of steeper central bank interest rate hikes slows demand. IMF chief economist Pierre-Olivier Gourinchas said recession risks had subsided and central banks are making progress in controlling inflation, but more work was needed to curb prices and new disruptions could come from further escalation of the war in Ukraine and China's battle against COVID-19.

(Source: Reuters)

• The eurozone eked out growth in the final three months of 2022, managing to avoid a recession even as sky-high energy costs, waning confidence and rising interest rates took a toll on the economy that is likely to persist into this year. Gross domestic product across the currency bloc expanded by a tiny 0.1% in the fourth quarter, data from Eurostat showed on Tuesday, outperforming expectations in a Reuters poll for a 0.1% drop.
• Among the biggest eurozone countries, Germany and Italy recorded negative growth rates for the quarter but France and Spain expanded, Eurostat added, based on a flash estimate that is subject to revisions. Russia's nearly year-old war in Ukraine has proved costly for the eurozone, which now spans 350 million people in 20 countries, given some members' heavy reliance on cheap energy. Surging oil and gas prices have depleted savings and held back investment while forcing the European Central Bank into unprecedented rate hikes to arrest inflation.
• But the economy has displayed some unexpected resilience, too - much like during the COVID-19 pandemic, when growth outperformed expectations as businesses adjusted faster to changed circumstances than policymakers had predicted.
• The overall picture nevertheless remains weak, with a meagre growth forecast for 2023 due to a large drop in real incomes and surging interest rates. "In the coming months, the noticeable tightening of monetary policy will increasingly slow down the economy," Commerzbank economist Christoph Weil said. "We continue to expect the euro area economy to contract slightly in the first half of the year, and the recovery expected in the second half is likely to be weak."

(Source: Reuters)

• The Government’s budgeted expenditure for fiscal year 2022/23 is being increased by approximately $24.5 billion. This will push the Central Government Budget to $998.2 billion, Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke, has said.
• The details are contained in the Third Supplementary Estimates of Expenditure, which Dr. Clarke tabled in the House of Representatives on Tuesday (January 31). The additional expenditure is primarily to facilitate payments under the public-sector compensation restructuring exercise, which accounts for $23.7 billion of the supplementary amount
• Interest payments are also estimated to increase by $2 billion, comprised of $1.8 billion on the external side and $200 million on the domestic side, and these primarily reflect interest and exchange rate changes.
• Capital expenditure declined by $2.3 billion and is due to the inability of the allocated expenditure to be undertaken on four projects before the fiscal year ends.
• This additional expenditure is being financed by an expected improvement of $25.4 billion on the revenue side, primarily from tax inflows. These are expected to increase by $28 billion consequent on higher growth estimates, as well as taxes from additional wages.
• Considering that increased expenditure is being financed by higher revenues, and there has been an increase in the allocation for debt payments, the Government of Jamaica is expected to remain on target to reduce debt and record fiscal and primary balance of 0.3% of GDP and 5.9% of GDP, respectively, at the end- FY2022/23. The debt-to-GDP is anticipated to fall to 87.3% of GDP by the end of FY2022/23 before falling further to 60% of GDP by end-FY2027/28.

(Source: JIS)