• With the Bank of Jamaica’s (BOJ’s) next meeting scheduled for November 21, Fitch Solutions anticipates two additional 25 basis points (bps) rate cuts in November and December, bringing the rate down to 6.0% by year end.
• This is based on the observation that GDP is slowing and is projected to contract in Q3 2024. Additionally, core inflation is easing, and recent spikes in headline inflation are likely to be temporary. Supply-side issues, such as hurricanes damaging farmers' yields, are not expected to result in a long-term rise in inflation, especially as international commodity prices are declining. Furthermore, the Fed's reduction of its policy rate alleviates external constraints on the BOJ.
• Fitch Solutions also revised its year-end interest rate forecast to 6.0%. After the November meeting, the BOJ’s Monetary Policy Committee will convene one last time in December, where another 25bps cut is anticipated. Inflation is expected to resume its downward trajectory in Q4 2024, ending the year at 5.7% year-on-year, driven by weaker demand and the diminishing effects of the recent spike in annual food price growth.
• Furthermore, Fitch forecasts that the policy rate will be lowered to 4.50% by year-end 2025, as the global easing cycle, led by the Fed, continues and the BOJ gains more room to stimulate the economy.
• This scenario is premised on a reduction in the Fed’s funds rate to 3.00% by mid-2025. Fitch’s observation is that the BOJ tends to respond to the Fed's cuts, exemplified by the 25 basis point reduction after the Fed's 50 basis point cut on September 18^th. Following softer growth in 2024 (BMI forecast: 0.5%), the BOJ is likely to aim for growth stimulation in 2025 through lower rates (BMI forecast: 2.3%). However, a persistently negative output gap may limit the immediate effects on inflation, which is expected to remain relatively contained in 2025, averaging around 4.0%, close to the lower end of the BOJ's tolerance band.

• Risks to this forecast suggest a lower end-of-year interest rate if another extreme weather event impacts Jamaica. Furthermore, the country remains susceptible to external factors, and Jamaica's hurricane season extends through November.

(Source: Fitch Solutions)

• The Jamaican economy grew by just 0.2% during the second quarter of 2024 (Q2 2024) compared to Q2 2023, according to STATIN. This was slightly higher than the preliminary figures of the Planning Institute of Jamaica (PIOJ), 0.1%, but still significantly slower than the growth of 1.4% recorded in Q1 2024.
• This slowdown occurred amid a 2% decline in the Services Industries - the first decline since Q1 2021 - which dampened the 1.5% rise in the Goods Producing Industries.
• The decline in the Services Industries was largely due to contractions in Wholesale & Retail Trade, Repairs, Installation of Machinery & Equipment (WRTRIM); Producers of Government Services; and Real Estate, Renting & Business Activities, which fell by 0.5%, 1.9%, and 1.5%, respectively. However, growth was seen in Hotels & Restaurants (1.0%), Finance & Insurance Services (2.4%), Transport, Storage & Communication (0.7%), Electricity & Water Supply (2.3%), and Other Services (0.1%).
• Growth among the Goods Producing Industries was driven by Agriculture, Forestry & Fishing, Mining & Quarrying, and Manufacturing, which grew by 3.4%, 4.0%, and 1.8%, respectively. Favourable weather conditions and ongoing government support to boost crop production aided the growth in the Agriculture, Forestry & Fishing sector. Growth in Mining & Quarrying was largely driven by a surge in alumina output, which rose by 15.0% to 385.2 thousand tonnes in 2024, up from 334.9 thousand tonnes in 2023, in response to increasing global demand. Meanwhile, the Manufacturing sector experienced a 1.8% growth, fueled primarily by a 4.1% increase in the Food, Beverages & Tobacco sub-industry.
• However, a reduction in activities in the building construction and civil engineering sector weighed down output in the Construction industry, which declined by 1.9%.
• Looking ahead to Q3 2024, the PIOJ projects that Jamaica's economy contracted by -0.1% to -1.0% relative to Q3 2023, largely due to the impacts of Hurricane Beryl. As a result, the short-term outlook for the overall economy appears negative, with anticipated contractions in the Agriculture, Mining & Quarrying, Electricity & Water, and Hotels & Restaurants sectors.
• However, there remains a chance that the impact of Hurricane Beryl could be less severe than expected. Forward-looking estimates from the Bank of Jamaica (BOJ) suggest that real economic activity for FY2024/25 will be more favourable than expected, thanks to a less severe damage estimate attributed to Hurricane Beryl. Jamaica’s economic recovery post-Beryl is expected to be led by growth in the agriculture, tourism and construction sectors with support from the GOJ and other key stakeholders.
• Starting Q4 2024, Agriculture sector recovery will likely be fueled by the GOJ’s financial support to farmers, allowing for rapid replanting and a faster recovery in production levels. For the tourism sector, with the US Fed signalling its economy is still resilient, a more favourable July 2024 Travel Advisory from the US Embassy, and efforts from the GOJ and other stakeholders to improve the Tourism Product, Jamaica’s Tourism sector is likely to rebound as the winter tourist season approaches. For the construction sector, amid the significant infrastructure damage, major post-hurricane repairs in the public and private sectors will likely ramp up expenditures for rebuilding, driving construction activity and economic growth.
• Nonetheless, resurgent inflation could prompt the BOJ to pause rate cuts, while a continued slowdown in tourism, an extended economic contraction from Beryl or another violent storm hitting Jamaica before the end of the 2024 hurricane season could all weaken economic growth prospects.

 (Source: STATIN & NCBCM Research)

• Fitch Solutions forecasts that Trinidad & Tobago’s (T&T) current account surplus will narrow from 12.1% of GDP in 2023 to 5.6% and 6.7% in 2024 and 2025, respectively.
• In recent years, T&T has benefitted from a surge in global energy prices, especially following Russia’s invasion of Ukraine in February 2022. In 2022, surging energy prices helped the current account surplus to jump to 17.5% of GDP, the highest since 2013.
• However, the surplus has narrowed considerably in recent quarters, in line with the normalisation of global energy prices. Despite rising tensions in the Middle East, Brent crude oil prices have trended down, with Fitch’s Oil & Gas team revising its average forecasts for 2024 and 2025 to USD81/bbl¹ and USD78/bbl (from USD85/bbl and USD82/bbl previously). Given these dynamics, Fitch has revised its current account projections, forecasting narrower surpluses in the coming years, although still wider than the 2015-2019 average of 4.2% of GDP.
• Going forward, falling energy prices will constrain export receipts, while robust household spending and an uptick in fixed investment will buoy demand for imported consumer and capital goods.
• Despite the narrowing surplus, Fitch foresees limited risks to Trinidad & Tobago’s external sector, with import coverage remaining well above the IMF’s minimum recommended threshold of 3.0 months.

________________

¹ In the oil industry, bbl refers to a barrel of crude oil or 42 gallons.

(Source: Fitch Solutions)

• Mexican President Claudia Sheinbaum, who took office this week as her country's first woman leader, announced a package of reforms on Thursday, October 3, aimed at bolstering women's rights in a country with some of the world's highest levels of gender violence.
• On her second full day in office, Sheinbaum said her government had proposed reforms to articulate and broaden women's rights, including a constitutional guarantee of equal pay for equal work.
• In Mexico, women make 65 pesos for every 100 pesos a man earns, according to the Mexican Institute for Competitiveness think tank, citing data from the national statistics agency.
• The reforms also seek to guarantee freedom from violence and to require gender parity in government cabinets at the state and federal levels. The plan involves modifying six articles of the Constitution and seven secondary laws, changes that will likely be approved in both houses of Congress, where the governing party, Morena, and its allies enjoy large majorities.
• Sheinbaum, the former mayor of Mexico City and a protege of former President Andres Manuel Lopez Obrador, took office on Tuesday and vowed that it was "time for women." On Thursday, the president said the proposed reforms were part of an effort to ensure women knew their rights and could identify gender-based discrimination. Toward that end, her government promised to create a type of women's bill of rights.
• Mexico has made recent strides in the representation of women in government and public positions, not only with Sheinbaum's election but also by installing the first woman to lead the country's Supreme Court, the first female governor of the central bank, and gender parity in Congress.

(Source: Reuters)

• The number of Americans filing new applications for unemployment benefits increased marginally last week, but the devastation unleashed by Hurricane Helene in the U.S. Southeast and strikes at Boeing and ports could distort the labour market picture in the near term.
• The report from the Labour Department on Thursday showed the labour market gliding at the end of Q3 2024, a state of affairs that could allow the Federal Reserve to be in no rush to deliver large interest rate cuts. The economy also ended the third quarter on solid footing, with another report showing services sector activity rose to the highest level in just over 1.5 years in September amid strong growth in new orders.
• Initial claims for state unemployment benefits increased by 6,000 last week to a seasonally adjusted 225,000 for the week ended September 28^th. Economists polled by Reuters had forecast 220,000 claims for the latest week. Unadjusted claims fell by 1,066 to 180,647 last week. The decline, however, was less than the drop of 5,692 that had been anticipated by the model used by the government to strip out seasonal fluctuations from the data.
• Overall claims are consistent with a stable labour market, which is being anchored by low numbers of layoffs. The calm, however, is likely to be temporarily shattered after Helene wreaked havoc in North Carolina, South Carolina, Georgia, Florida, Tennessee and Virginia late last week.
• Work stoppages by about 30,000 machinists at Boeing and 45,000 dockworkers at U.S. East Coast and Gulf Coast ports are also expected to muddy the labour market view. Though striking workers are not eligible for unemployment benefits, their industrial action is likely to ripple through the supply chain and other businesses dependent on Boeing and ports and cause temporary layoffs.
• Boeing has announced temporary furloughs of tens of thousands of employees. Claims in Washington state, where the planemaker has major production facilities, rose last week above their recent average. Economists are divided on the magnitude of the hit from Helene, with some estimating that claims could jump to 250,000 in the weeks ahead. Others argued the impact would be minimal.

(Source: Reuters)

• A major union for U.S. dockworkers and the United States Maritime Alliance agreed on Thursday to a tentative deal on wages and have extended their existing contract through Jan. 15 to provide time to negotiate a new contract. The move ends a strike that had snarled East Coast and Gulf Coast ports since the beginning of the week and threatened U.S. supply of fruits, automobiles and other goods.
• “The International Longshoremen’s Association and the United States Maritime Alliance, Ltd. have reached a tentative agreement on wages and have agreed to extend the Master Contract until January 15, 2025, to return to the bargaining table to negotiate all other outstanding issues,” The ILA and the USMX said in a joint statement.
• During the week, the strike had already started to stress the U.S. supply chain. Thousands of containers had been dumped at the wrong ports, and billions of dollars in goods were anchored offshore because ports were not operational, CNBC previously reported. Shipping costs had already started to rise.
• The strike was the first by the ILA since 1977. It impacted operations at 14 different ports. About 50,000 of the union’s 85,000 members were on strike this week. In a statement on Tuesday, ILA President Harold Daggett said the union was asking for an increase of $5 per hour for each year of the six-year contract.
• ILA wages will increase 61.5% over six years under the tentative agreement, sources told CNBC’s Lori Ann LaRocco. A central conflict over port automation is still under negotiation.

(Source: CNBC)

• Following the announcement of Christopher Williams' retirement as Charter CEO of PROVEN Management Limited (PML) effective January 31, 2025, the Board of Directors has appointed Johann Heaven as the new CEO, starting February 1, 2025.
• Mr. Heaven, a co-founder of PROVEN Group Limited, brings over 25 years of experience in finance and banking. He currently serves as Deputy CEO of PML, where he leads the finance, planning, and investment functions, while also overseeing the Treasury, Asset Management, and Information Technology teams. Previously, he was the President and CEO of PROVEN Wealth Limited, the Group’s wealth management company in Jamaica.
• While Mr. Williams will retire from daily executive operations, he will remain an active director of PML, a significant shareholder, and a member of the Investment Management Committee. He will also continue to serve as a Board Director for several subsidiaries of PROVEN Group. His strategic insight, guidance, and expertise will remain invaluable to the ongoing success and development of the organization.
• With the evolution of PROVEN Group from an investment management company to a conglomerate structure, the role of the PML CEO and the subsidiary CEOs must also evolve. Consequently, the CEOs of the respective subsidiaries will serve as the primary public representative of each subsidiary/pillar of the Group. These CEOs will report to their respective Board of Directors, with dotted line reporting to the PML CEO. The PML CEO will be responsible for directing the strategic planning process across the Group, capital allocation, stakeholder reporting and relations, and will also oversee the Shared Services teams (Treasury, Asset Management, IT, People).
• The Board of Directors of Proven Bank (Cayman) Limited (PBC) has also announced the appointment of a new President and CEO designate, subject to CIMA approval. Since the untimely passing of Benjamin Freeman in August 2023, the position has remained vacant but is anticipated to be filled by an experienced candidate effective November 1, 2024.
• Shareholders have expressed concerns regarding the deterioration in the company's performance and the suspension of dividend payments, which have negatively affected the company’s share price. Proven has attributed these challenges to inflationary pressures, elevated interest rates, narrowing interest spreads and its impact on overall performance. Since the start of the year, PROVEN’s share price has fallen by 32%,  and the Group has recorded  a year-to-date loss of US$1.37Mn.
• With the recent interest rate reductions, we anticipate a gradual decrease in funding costs across the group and an increase in net interest income as the interest rate spread widens. Combined with the ongoing organizational restructuring, this could enhance the company’s financial performance in H2 2025 (Starting October 2024) and FY26 (Starting April 2025). While we expect to see some improvements in the second half of the year, it may take time for the full effect of these changes to materialize.

 (Source: JSE & NCBCM Research)

• Following the damage caused by Hurricane Beryl in early July, Fitch Solution is lowering its 2024 real GDP growth forecast for Jamaica from 2.4% to 0.5%. In 2025, Fitch expects that growth will come in at 2.3% – compared to 1.3% between 2015 and 2019 before the pandemic.
• Initial Q2 real GDP growth data has disappointed, coming in at 0.1% y-o-y, according to the Planning Institute of Jamaica (PIOJ). Through H2 2024, Fitch Solution expects quarterly growth to average 0.2% y-o-y driven by a slowing US economy. Given that tourism accounts for around 25% of employment and 30% of GDP, a slowing US economy - a key supply market - will weigh tourist arrivals and visitor expenditure. Fitch Solutions’ views on the US economy are that it will lose momentum around Q4 2024 continuing through early 2025.
• Additionally, weighing on growth in 2024 will be the effects of Hurricane Beryl. The UN found that the hurricane caused US$12Mn of infrastructure damage and US$15.9Mn of farmland damage.
• Notwithstanding the disappointing growth, Fitch Solutions expects that Jamaica’s GDP Growth will rebound in 2025, supported by net exports, contributing 0.8 percentage points (pp) to its growth forecast and a rebounding tourism sector in 2025. As US economic activity increases, Fitch anticipates higher discretionary spending on travel. Consequently, Jamaica is poised to see a significant uptick in tourism arrivals, which will drive growth in the hospitality sector.
• Additionally, the relaxed monetary policy, especially the 50 basis point (bps) reduction by the Fed, is expected to create a favourable global investment climate. Fitch expects this outcome would support a 0.2pp increase in investment to Jamaica as the US economy picks up in H2 2025.
• The risks to the forecast are generally balanced. Fitch maintains its core outlook that the US economy will slow between the second half of 2024 and the first half of 2025. However, there is a possibility that growth could exceed expectations, particularly if there is stronger consumer spending driven by the Fed's easing policies. Should US growth outperform Fitch’s projections, Jamaica is likely to benefit from increased tourism and remittances.
• On the downside, Jamaica, like many other Caribbean nations, faces inherent risks from natural disasters. Coupled with the effects of climate change, an extreme weather event could adversely affect tourism and the manufacturing of export-oriented goods.

(Source: Fitch Solutions)

• Brazil's upgraded credit rating by Moody's highlights that the risk premium in the country’s local yield curve does not reflect its fundamentals and should be reduced, Finance Ministry officials told Reuters on Wednesday, October 2, 2024.
• Tuesday's upgrade to Brazil’s long-term issuer and senior unsecured bond ratings to Ba1 from Ba2, coupled with its Positive outlook meant the country is one notch from regaining investment grade status.
• The upgrade reflects material credit improvements, which Moody’s expects to continue, including a more robust growth performance than previously assessed and a growing track record of economic and fiscal reforms that lend resilience to the credit profile.
• The credit agency also noted that the credibility of Brazil's fiscal framework is still moderate. However, its relatively high cost of debt, robust growth and consistent fiscal policy adherence to the fiscal framework should allow the debt burden to stabilise in the medium term, albeit at relatively high levels.
• Brazil’s positive rating outlook reflects the possibility that steady growth and compliance with the sovereign’s fiscal framework will help enhance institutional credibility and reduce borrowing costs more markedly than currently assumed. 
• Speaking anonymously, a senior ministry official said Moody's action, taken amid strong market scepticism reflected over Brazil's fiscal outlook, would help restore normality. "The revision, together with the maintenance of a positive outlook, should start to encourage non-resident inflows, as they tend to anticipate investment-grade status," the official said. "As it becomes credible that we'll regain investment grade by 2026, the movement should intensify by 2025."

(Sources: Reuters & Moody’s Investor Services)

• The Guyanese government is finalising arrangements to begin making fiscal contributions to the Protected Areas Trust (PAT) Fund, as part of its drive to advance biodiversity protection efforts.
• This was confirmed by Permanent Secretary (PS) of the Ministry of Natural Resources, Joslyn McKenzie, during an address at the PAT’s 10th anniversary celebration. McKenzie noted that the agreement marks the fulfilment of yet another commitment by the government as it seeks to expand the work of the PAT.
• PAT was established in 2014 to fund and manage the National Protected Areas System (NPAS). Through the Protected Areas Commission, PAT supports projects that conserve biodiversity and maintain ecosystem services within Guyana’s protected areas. This is achieved by using revenue from its endowment fund – the Protected Areas Trust Fund (PATF).
• The PATF was originally endowed with US$8.5Mn, but the organisation receives funding from international donors, private sector donations and endowment fund investments, among other avenues. PS McKenzie explained that the government’s financial contribution will advance efforts to double the size of protected areas.
• Of note, during his recent addresses at the United Nations General Assembly and several sideline engagements, President Dr Mohamed Irfaan Ali reiterated Guyana’s commitment to doubling its protected areas by December 2025 and achieving the global biodiversity target of protecting 30 per cent of its land and marine areas by 2030. The permanent secretary reinforced the president’s vision and said that the country is on track to achieving this ambitious target.

(Source: Guyana Chronicle)