• The U.S. trade deficit in goods widened to a record high in December as imports increased for a fifth straight month amid strong domestic demand, suggesting that trade likely remained a drag on economic growth in the fourth quarter. 
• But imports are helping to replenish depleted inventories, with the report from the Commerce Department on Wednesday showing strong restocking at retailers and wholesalers last month. Solid inventory accumulation likely offset the impact on gross domestic product from the larger trade gap, prompting some economists to raise their growth estimates for the last quarter. 
• "Strong demand and shifting consumer preferences during the pandemic led to a surge in imports that continues to outstrip exports and is contributing to all-time highs in the deficit," said Rubeela Farooqi, chief U.S. economist at High-Frequency Economics in White Plains, New York. 
• The goods trade deficit rose 3.0% to an all-time high of $101.0 billion last month. It was also the first time that the deficit breached the $100 billion threshold. The rebuilding for inventories could keep the goods trade deficit wide at least through the first half of this year. 
• Goods imports increased 2.0% to $258.3 billion, likely as the backlog at ports continued to be cleared. The increase in imports was driven by capital goods, motor vehicles, and consumer goods. But imports of food and industrial supplies declined. Goods exports rose 1.4% to $157.3 billion. There were increases in exports of consumer goods, industrial supplies, and motor vehicles. Capital goods exports also rose, but food exports tumbled.

(Source: Reuters)

• On January 26, the Bank of Canada held its policy interest rate at 0.25%, a surprise to the market, which had anticipated a 25 basis point (bps) hike. Fitch Solutions expected the BoC would raise the policy rate in Q122, either during its January or March 2 meeting. Fitch maintained its forecast for 75 bps in hikes in 2022, bringing the policy rate to 1.00% by year-end. 
• In his remarks following the January meeting, BoC Governor Tiff Macklem took a more hawkish tone and stressed that the central bank had already shifted away from the extraordinary accommodative measures enacted during the Covid-19 pandemic. 
• The BoC concluded the asset-purchasing programme in October 2021, and the January statement omitted the forward guidance of maintaining the policy rate at the effective lower bound. The statement also highlighted that the tightening labour market and ongoing economic momentum indicated that ‘the overall slack in the economy is absorbed, thus satisfying the condition outlined in the Bank’s forward guidance on its policy interest rate’. 
• Macklem said that Canadians should expect the BoC to hike the policy interest rate in the near term to help curb inflation, which accelerated to 4.7% y-o-y, above the central bank’s 1.0-3.0% target range, in December. Fitch also forecast inflation will remain elevated, averaging 3.7% in 2022.

(Source: Fitch Solutions)

• The Pan American Health Organization (PAHO) is looking to facilitate the vaccination of at least 70% of the collective population of Latin American and Caribbean member countries against the coronavirus (COVID-19) by mid-2022. 
• The organization has been able to deliver nearly 100 million doses of vaccines to 33 countries and in recent months’ vaccine supplies have increased in the region. However, vaccination statistics show that only four member countries have, to date, vaccinated more than 75% of their populations – Chile, Cuba, Panama, and Paraguay. 
• As of Friday, January 21, 2021, the Pan American Health Organization estimates that 20.3% of Jamaica's population has been fully vaccinated, making it the second least vaccinated jurisdiction in the Caribbean behind Haiti. On Monday the United States Centers for Disease Control and Prevention escalated the travel risk of Jamaica to Level Four, warning travelers to ensure that they are fully vaccinated before travel. 
• The CDC’s latest advisory comes amidst an easing of travel and other COVID-related restrictions, and, as the country experiences its fourth wave of the pandemic. This development will likely deter short-term travel and undermine the recovery in the country’s tourism sector. 
• Furthermore, as territories push towards increasing their vaccination rate, which would help PAHO achieve its 70% target by mid-2022, Jamaica may continue to lag due to vaccine hesitancy amongst the population. Additionally, given the spread of new variants, travelers may choose destinations with higher vaccination rates, which also presents a risk to Jamaica’s tourism recovery.

(Sources: JIS News & NCBCM Research)

• Antigua and Barbuda real GDP growth is expected to increase by 3.8% in 2022, from an estimated 1.2% in 2021, as economic activity strengthen in H2 2022 as tourism demand rebounds.
• However, the government’s limited capacity to deploy countercyclical spending measures will restrain domestic demand and consumption. Omicron surges in the US, Canada, and the UK in recent months could weaken near-term tourism inflows to Antigua & Barbuda. The U.S. and U.K. remained the islands’ main source markets, combining a total of 17,306 visitors or 92% of the total visitors arriving in August 2021. The U.S. market continues to dominate as the main source market with 52.5% of the total visitor arrivals while the U.K. contributed 39.5% of the total visitor arrivals. 
• Despite near-term headwinds from Covid-19, tourism inflows are expected to strengthen throughout H2 2022 due to higher vaccination rates and increasing willingness to travel in developed markets. Furthermore, Antigua and Barbuda’s economy is forecast to reach 2019 GDP levels by 2027, with 4.5% growth in 2023, and growth averaging 3.2% between 2024-2027 on the back of improved vaccination rates. According to Our World in data as of January 26, 60% of the population in Antigua and Barbuda has been fully vaccinated and 64% of the population has at least one dose of a vaccine.  

 (Sources: Fitch Solutions & NCBCM Research)

• Given the significant volume of natural gas discovered in the Stabroek Block and the quantity that would be piped to shore via the US$900Mn gas-to-shore project, many industry experts had warned that Guyana would have to explore the exportation of gas since domestic demand would be utterly overwhelmed. 
• Minister of Natural Resources, Vickram Bharrat, also disclosed that another project—the Yellowtail Project—which is poised to be executed by ExxonMobil in the Stabroek Block would also support an improvement in the country’s gas reserves, once approved. This project is poised to generate 450 million standard cubic feet of gas per day by 2025-2026. This is nine times the volume of gas that would be brought onshore via the US$900Mn gas-to-shore project. 
• With the country now gearing up to export natural gas, this will lead to an increase in government revenues, exports, expansion of the oil sector and overall economic growth.

 (Sources: Kaieteur News & NCBCM Research)

• The Federal Reserve signaled it will start raising interest rates “soon” to fight the hottest inflation in a generation. The Central Bank is also gearing up to reduce the size of its balance sheet, which ballooned as the Fed tried to avert an economic meltdown in the wake of the COVID-19 pandemic by pumping money into the system. 
• “With inflation well above 2% and a strong labour market, the committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the Federal Open Market Committee said in a statement Wednesday following a two-day policy meeting. This will be the first time officials will be increasing the benchmark policy rate after lowering it to 0% to 0.25% in March 2020 to help support economic recovery amidst the pandemic. 
• The Fed also stated that it will conclude asset purchases on schedule, leaving them on track to end in “early March.” The Fed’s balance sheet stands at nearly $8.9 trillion, more than double its size before officials began massive asset purchases at the onset of the pandemic to calm market panic. 

 (Sources: Bloomberg & NCBCM Research)

• The Senate recently approved the Proceeds of Crime (Designated Non-Financial Institution) (Trust and Corporate Services Providers) Order, 2022. This act has been incorporated to strengthen Jamaica’s stance in its fight against money laundering. 
• The implementation of the act provides a signal to international stakeholders that Jamaica will comply with set international obligations and practices. In February 2020, Jamaica was placed on a ‘grey list’ by the Financial Action Task Force (FATF) for weaknesses in its Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) regime. 
• This new law represents a step in the right direction as it aims to strengthen the effectiveness of Jamaica’s AML/CFT framework and address identified technical compliance deficiencies with the Financial Action Task Force (FATF) recommendations. 
• Minister without Portfolio in the Ministry of Economic Growth and Job Creation, Senator Matthew Samuda, who brought the Order before the Senate, said “It should be noted that the designation of the Trust and Corporate Services Providers as Designated Non-Financial Institutions under the Act will allow any person or entity providing a trust service, or a corporate service to fall within the regulated sector.”
• As the government implements measures to tackle uncertainties surrounding money laundering and terrorism financing through regulation, this increases the likelihood of Jamaica being removed from the FATF’s grey list as well as its status as a high risk third party country will be repealed. This would cause banks and other and financial and tax firms to scrutinize less closely their clients with dealings or investments, with or in Jamaica. Consequently, this would enhance Jamaica’s attractiveness to international stakeholders and may provide a boost in foreign direct investment.

• (Sources: JIS News & NCBCM Research)

• The International Monetary Fund (IMF) on Tuesday lowered its 2022 economic growth forecasts for Latin America and its two largest economies- Mexico and Brazil, citing inflation, tighter monetary policy and a lower growth estimate for the United States as keys to the downgrades. 
• The IMF reduced its growth expectations for Mexico and Brazil by 1.2 percentage points each to 2.8% and 0.3%, respectively, while the estimate for Latin America and the Caribbean was cut by 0.6 percentage point to 2.4%. 
• The IMF in its World Economic Outlook for Brazil posited that "the fight against inflation has prompted a strong monetary policy response, which will weigh on domestic demand". The benchmark Selic interest rate, which is the Brazilian federal funds rate, was hiked 725 basis points in less than a year to the current level of 9.25%. Although necessary to contain inflation, the higher rates will result in an increase in the borrowing cost, which will reduce consumer spending and investment, leading to lower economic growth. 
• The IMF also reported that Mexico will be slightly affected by inflation and higher rates, compounded by an expected drop in output growth from the United States, its most important trading partner.

 (Sources: Reuters & NCBCM Research)

• Rising interest rates and decelerating economic growth will slow the pace of loan growth in the Brazilian banking sector in 2022. Loan growth is expected to decline from 18.7% last year to 8.4% at end of 2022, according to Fitch. 
• Brazil’s banking sector saw substantial growth in their loan portfolios in 2021, bringing loans to GDP to an estimated 72.9%, an all-time high. This continued the strong growth from 2020, fueled by fiscal stimulus aimed at mitigating the economic impact of the pandemic and loose monetary policy in H1 2021, which supported lending to firms and households to cover income losses. 
• At the same time, asset and deposit growth will slow from 10.5% and 9.3%, to 9.7% and 5.7%, respectively, over the same time period. Higher net interest margins will bolster the sector’s profitability, although rising debt servicing costs pose a downside risk to asset quality. 
• Over the course of 2021, households were the driving force behind overall loan growth and while households will likely remain the driving force behind loan growth in 2022, Fitch expects overall demand will decline in 2022, as rising debt serving costs will reduce households’ willingness to take on new debt and elevated inflation will erode the value of wages.

 (Source: Fitch Solutions)

• The International Monetary Fund cut its world economic growth forecast for 2022 as the Covid-19 pandemic enters its third year, citing weaker prospects for the U.S. and China along with persistent inflation. 
• The world economy expanded 5.9% last year, the IMF estimated, the most in four decades of detailed data. That followed a 3.1% contraction in 2020 that was the worst peacetime decline in broader figures since the Great Depression. The global economy will expand 4.4% this year, down from an estimate of 4.9% in October 2021, the Washington-based IMF said in its World Economic Outlook on Tuesday. 
• The lower forecasts comes on the back of an expected fall-off in economic activity from the world’s largest economies. The U.S., the world’s largest economy, saw its forecast cut on the outlook for President Joe Biden’s Building Back Better spending agenda, earlier withdrawal of monetary accommodation, and continued supply shortages. China, the second-biggest, is experiencing pandemic-induced disruptions related to the zero-tolerance COVID-19 policy and protracted financial stress among property developers. 
• IMF forecasts 3.8% growth for 2023, up from the prior projection of 3.3%. The upward revision to global growth in 2023 is mostly mechanical. Eventually, the shocks dragging 2022 growth will dissipate and, as a result, global output in 2023 will grow a little faster. 
• The general theme across the regions is that growth will slow for 2022. Central banks that slashed interest rates to soften the economic decline caused by the pandemic, are now facing pressure to tighten policy to confront surging consumer prices, threatening to curtail the growth rebound. Governments also have less fiscal space for spending to address health needs and buoy their economies after piling up record debt. 

 (Sources: Bloomberg & NCBCM Research)