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UK Key Country View Published: 28 September 2021

  • Fitch Solutions, expects that UK’s real GDP to grow by 6.0% in 2021 and by 5.0% in 2022 as fiscal and monetary policy remain supportive. Though risks to their growth projections remain skewed to the downside. 
  • The UK's current account deficit is expected to widen to 3.8% in 2021 from 3.5% in 2020 as a recovery-induced increase in imports outpaces growth in exports. 
  • The current account deficit should begin narrowing from 2022, coming in at 3.4% of GDP in 2022 and 3.3% in 2023 according to forecasts, largely on account of stronger export growth as Brexit-induced disruptions to trade gradually dissipate. 
  • Fitch expects that the Bank of England (BoE) will maintain accommodative monetary policy over the remainder of 2021 and in 2022. However, high and rising inflation, alongside above-trend growth expected for this year and the next, have led Fitch to revise its interest rate outlook slightly: it now expects the BoE to increase its main policy rate by 15 basis points (bps) to 0.25% in H222.

(Source: Fitch Solutions)

Oil Up On Tight Supply, Brent Crude Nears $80 A Barrel Published: 28 September 2021

  • Oil prices gained on Monday for a fifth straight day, with Brent at its highest since October 2018 and heading for $80, as investors worried about tighter supplies because of rising demand in parts of the world. 
  • Brent Crude was up $1.44, or 1.8%, to settle at $79.53 a barrel, having posted three straight weeks of gains. US crude futures rose $1.47, or 2%, to settle at $75.45 a barrel, its highest since July, after rising for a fifth straight week. 
  • Goldman Sachs raised by $10 its year-end forecast for Brent crude to $90 per barrel. Global supplies have tightened due to the fast recovery of fuel demand from the outbreak of the Delta variant of the coronavirus and Hurricane Ida's hit to U.S. production.

(Source: Reuters)

Jamaica Will Return to A Fiscal Surplus On Rebounding Revenues Published: 24 September 2021

  • Jamaica’s fiscal balance will shift to a surplus of 1.4% of GDP in FY2021/22, from a deficit of 2.8% in FY2020/21, as the country’s economic rebound from the impact of the COVID-19 pandemic boosts revenues. The government ran budget surpluses from FY2017/18 to FY2019/20 as part of Jamaica’s consecutive IMF programmes from 2013 to 2019. However, the coronavirus pandemic caused a sharp contraction in economic activity and revenues in FY2020/21, flipping the balance into deficit. 
  • Expenditures are anticipated to grow 8.0% in FY2021/22 owing to capital and recurrent spending aimed at supporting the economy as it emerges from the pandemic. 
  • Total revenues are expected to rebound to 25.0% growth in FY2021/22, on the back of increased tax collections as the Jamaican economy recovers, after a fall off of 11.4% in FY2020/21 due to the impact of the pandemic on the local economy. Remittance inflows and the loosening of restrictions on activity, particularly in the tourism sector, have generated more revenues from income and sales taxes, leading to a 39.4% YoY rebound in revenues from April to July of 2021. 
  • Jamaica’s fiscal surplus is expected to grow to 1.9% of GDP in FY2022/23, as revenues continue to outpace expenditures. As the tourism sector continues its recovery, the government is expected to rein in spending, returning to the fiscal consolidation it pursued before the pandemic. The unemployment rate is anticipated to fall in the months ahead, from 9.6% in April 2021, reducing the need for social spending. This will shift the composition of spending towards capital programmes, which will accelerate the growth of the economy. 
  • However, another spike in cases and the re-imposition of no movement days could derail these projections.

(Source: Fitch Solutions)

Costa Rica: Public Employment bill returns to Legislative Assembly; IMF conducts first review Published: 24 September 2021

  • The full court ruling on the Public Employment bill returned to the Legislative Assembly this week, nearly two months since the Constitutional Chamber completed its review and found no procedural issues but identified 35 components of the bill to be unconstitutional. 
  • The Public Employment bill is a structural benchmark under the IMF program and one of the six bills comprising the IMF legislative agenda. It is the most advanced bill, having received approval in the first debate with 32 votes in favour back on June 18, 2021. 
  • From here, the Legislative Assembly appears to have three potential routes for the bill: 1) correct the components that were deemed unconstitutional and then vote on it again in the first and second rounds; 2) vote on the bill as is but would likely face future challenges; or 3) it could be outright rejected. 
  • Changes to the bill could result in the final approval requiring just a simple majority (32 votes) compared to the previously expected qualified majority (38 votes). 
  • Passing this bill would help to simplify public employment, reduce wage inequality, and help contain the increase in spending on salaries charged to the state budget. However, Costa Rica’s heightened social unrest owing to the IMF programme and proposed legislations, is still a significant blockade to the support and passage of the bill. 
  • The other IMF legislative agenda items are still scattered across various commissions. Most are expected to head to the Assembly floor shortly, with concern that they have not been fully socialized in the commissions prior to their deadlines.

(Source: Oppenheimer & NCBCM Research)

Mexican Peso Likely To Trade Sideways In Near Term Before Longer-Term Depreciation Published: 24 September 2021

  • Fitch Solutions holds a neutral view on the Mexican peso (MXN) over the near term, as its real interest rate differential with the US and Mexico’s political stability relative to its peers will be balanced by slowing economic growth and risks around financial market sentiment. 
  • Over the longer term, it is expected that the currency will modestly depreciate, weighed down by relatively weak economic fundamentals such as low investment. Risks are weighted to the downside. 
  • Fitch forecasts the unit will stand at MXN20.10/USD at the end of 2021, slightly weaker than its previous forecast of MXN19.80/USD to account for the unit’s recent performance. This will put more pressure on highly leveraged companies such as PEMEX, which have a majority of their debt denominated in USD.

(Source: Fitch Solutions & NCBCM Research)

BoE Sees Growing Case For Rate Rise As Inflation To Stay Higher For Longer Published: 24 September 2021

  • The Bank of England said the case for higher interest rates "appeared to have strengthened" on Thursday after it increased its forecast for inflation at the end of the year to over 4%, more than twice its target rate. 
  • The BoE said it expected the overshoot to be temporary, but two policymakers called for an immediate halt to the British central bank's 895 billion pound ($1.23 trillion) bond purchase programme, which is due to run until year-end. 
  • After the BoE statement, sterling interest rate futures priced in a 90% chance that the BoE would raise rates by February, up from just over 60% before, though some economists say this is premature given the challenges to growth. 
  • The Sterling rose by almost a cent against the U.S. dollar and two-year British government bond yields surged by their most since March 2020 as traders bet on an earlier rate rise by the BoE, which would be the first major central bank to hike since the COVID-19 pandemic.

(Source: Reuters)

Evergrande-Prompted Slowdown Would Pose Risks for EMs Published: 24 September 2021

  • The scale of the escalating difficulties at Evergrande remains unclear, but the house builder’s financial problems are focusing attention on long-running problems in China’s property sector. 
  • The highly-leveraged firm appears to be unable to service its debts, which could force a state-backed bailout or some form of restructuring on a scale never before attempted in China. Since the firm’s liabilities are believed to exceed USD300bn (about 2.0% of GDP). 
  • Over the past week growing fears surrounding the situation at Evergrande have hit emerging financial markets. Currencies have weakened against the US dollar, while equity markets have sold off. While Asian markets suffered, so did widely traded emerging market (EM) currencies, which suggests that investors are worried about economic conditions generally. 
  • Fitch Solutions maintained its 2021 growth forecast for China at 8.3% for now but admits that the risk that Evergrande's difficulties will cause meaningful damage to the Chinese economy is growing.

(Source: Fitch Solutions)

Minister Happy With Return Of Cruise Ships Published: 23 September 2021

  • Minister of Tourism, Hon. Edmund Bartlett, has said cruise shipping remains an important value-added complement to stopover arrivals and will also be a crucial component to Jamaica’s tourism recovery efforts. 
  • Two cruise ships are expected to call in Ocho Rios this week, bringing the number of vessels to have called on the resort town since the phased reopening of the sector in August to 5. Mr. Bartlett noted that this development underscores the growing demand for destination Jamaica and the success of efforts to reopen the tourism sector. 
  • Since the return of stopover visitor arrivals since June 2020, Jamaica has been seeing steady growth towards pre-COVID-19 levels, and now that the cruise shipping industry is back on stream, significant growth in the numbers is expected. 
  • Assistant Director for Marketing and Communications at the Port Authority of Jamaica (PAJ) Kimberly Stiff, said the PAJ has been working overtime with other government agencies to keep things in order, in order to attract a lot more ships. 
  • However, the Centers for Disease Control and Prevention (CDC) has assigned Level 4 travel advisory status to Jamaica, which cautions US travelers to avoid travelling to Jamaica unless fully vaccinated. This could deter cruise ships from docking in Jamaica and underscores the importance of controlling the spread of the coronavirus variants and reducing the infection rate.  

(Source: JIS News)

Bahamas GDP Rebounds 4-8 Months After Storms Published: 23 September 2021

  • The Bahamas has returned to pre-hurricane gross domestic product (GDP) levels between four to eight months after each of the last four major storms struck this nation, a study has found. 
  • An Inter-American Development Bank (IDB) report, produced by four authors on the impacts of Dorian, Irma, Matthew and Joaquin, found that this country’s economy rebounded relatively quickly despite the combined $4.4bn worth of damage they inflicted. 
  • This, though, is likely explained by the fact that New Providence, which generates roughly 70-75 percent of the country’s economic output (GDP), was not directly impacted by any of these storms apart from Hurricane Matthew which failed to score a direct hit in October 2016. 
  • In measuring the storms’ impact the IDB report has stated that it takes between four and eight months on average for the economy to recover to pre-hurricane GDP levels for the hurricanes studied.”
  • “The results show that The Bahamas experiences a decrease in the year-to-year nominal growth rate during the month and quarter of a hurricane impact event, but does not show a contraction of GDP in the year of the event. However, this does not mean that the damages are insignificant.”

(Source: IDB & The Tribune)

Ongoing Spread of Covid-19 Poses Risks To Social Stability, Fiscal Consolidation In T&T Published: 23 September 2021

  • The continued spread of COVID-19 in Trinidad & Tobago (T&T) will keep unemployment elevated in the coming months, raising risks to social stability and weakening the popularity of the ruling, centre-left People’s National Movement (PNM). 
  • Fitch Solutions has revised down T&T’s score in its Short-Term Political Risk Index (STPRI) to 60.8 out of 100, from 61.5, due to the growing risks to social stability in the months ahead. 
  • Moreover, Fitch sees increased risks to the PNM’s goal of enacting fiscal consolidation in the medium term, as austerity measures would likely further undermine the party’s public standing and potentially provoke public protests against these reforms.

(Source: Fitch Solutions)