H221 Recovery to Continue Into 2022 As Tourism Activity Approaches Pre-Pandemic Levels In Jamaica, But Fresh Risks Temper Outlook

Renewed tourism activity in Jamaica will drive real GDP growth of 4.6% in 2021 and 4.1% in 2022, up from a 9.9% contraction in 2020. This is an upward revision from 4.4% previously. The modest easing of travel restrictions and more limited overnight curfew in Q221 supported tourism arrivals and commercial activity.
In the coming quarters, an increasing global vaccination campaign is expected to increase overseas travel demand, bolstering real exports and private consumption in Jamaica. However, real GDP growth is anticipated to slow to 4.1% in 2022 as base effects fade.
Real export growth is forecasted to be 8.2% in 2021 and 3.8% in 2022 as high levels of COVID-19 vaccinations in key source markets will support tourism inflows to Jamaica and services exports. The US, UK, and Canada, key tourism source markets, ramped up their vaccination campaigns in H121, with at least 65.0% of their respective populations receiving at least one dose of a vaccine as of October 2021. This is expected to underpin greater demand for overseas travel. Moreover, airline and cruise ship companies have announced plans to increase travel options to Jamaica.'
Private consumption growth is expected to be 4.2% in 2021 and 3.5% in 2022 as the return of the tourism industry boosts employment. Unemployment was 9.0% in Q221, below the 12.6% in Q320 but still above the average of 7.7% in 2019. At the same time, a strong labour market in the US, where the majority of Jamaican expatriates work, will bolster continued remittance inflows. Remittances accounted for 15.2% of GDP in 2019, and in the year through July 2021, increased 30.4% y-o-y. Strong remittance inflows will further support household incomes and private consumption.
A brighter outlook for tourism will drive a 4.0% increase in investment in 2021 and 3.5% in 2022. However, higher borrowing costs will place a ceiling on investment growth in the quarters ahead. On September 30, the Bank of Jamaica (BOJ) raised its benchmark interest rate to 1.50%, from 0.50% previously, which will filter through to make credit more expensive for businesses.
The continued global spread of COVID-19 poses downside risks to Jamaica’s recovery. The persistent spread of the disease increases the possibility that more vaccine-resistant variants of COVID-19 may develop. If the risk remains prominent in the developed markets that dominate overseas demand for tourism, it will weaken global travel and threaten Jamaica’s recovery. Moreover, as of October 2, only 18.1% of Jamaicans had received one dose of a vaccine, leaving the country vulnerable to additional, economically disruptive outbreaks of COVID-19 in the coming quarters. While tourism is set to make a much-anticipated comeback, the recent fire at the Jamalco plant poses a significant downside risk to the outlook. The fire resulted in the loss of vital assets, including the powerhouse, two turbine generators, turbine generator control equipment, two control rooms, and a fuel oil pump station. As a result, production is currently non-existent and stage one of the three-stage resumption model will result in only a 50% restoration of plant capacity by June 2022.

(Source: Fitch Solutions & NCBCM Research)