Economic Report (September 2015)

Transcription

1 Economic Report (tember 2015) EXECUTIVE SUMMARY Inflation has declined to a record low as the country continues to broadly benefit from low global oil prices. Businesses appear to be Summary Economic Indicators taking advantage of the more favourable environment, with companies announcing key strategic movements, from the potential amalgamation of media operations of Gleaner & RJR, to companies expanding in the Caribbean, to the issuance of new shares to take advantage of opportunities. Performance in the key economic variables for the past month included: In August, the 12-month point-to-point inflation rate declined further to 3.5%, in line with the Bank of Jamaica s (BOJ) projections, with the monthly change in the Consumer Price Index (CPI) totaling 0.8%. Yields on Treasury Bill tenors continued to decline generally in tember, with the 91-Day and 182-Day tenors declining by 15bps and 14 bps respectively. Revenue inflows were slightly higher than budgeted for the 1 st 4 months of the fiscal year by 0.4% while expenditure was below the budgeted amount. As a result, both the fiscal deficit and primary surplus were ahead of budget for the period. Expenditure on imports continues to decline for the uary- period, reflecting lower global oil prices as well as lower import volumes of fuels. Despite lower earnings from exports, the balance of trade continues to improve. Remittances continue to increase at a modest pace, reaching a record high this year. The stock of Net International Reserves (NIR) increased in August, remaining comfortably above US$2B and above the international benchmark of 12 weeks of goods & services imports. Overseas, head of the Federal Reserve, et Yellen, says uncertainty in economies including China persuaded policymakers to wait in tember before raising the benchmark interest rate, despite the US economy performing well & creating jobs. Recent volatility in equity markets could prompt the Fed to hold off on any interest rate increase until year-end, according to economists, analysts and other central bank observers. The outlook for the global economy seems to be less optimistic than before, with a number of countries receiving credit rating downgrades, including Japan and France, as well as growth estimates being downgraded, including for China and Russia Actual (A) Projections (P) Jun Aug Dec 12M PTP Inflation (%) Interest Rates (%) 180D T-Bill (%) (A) D BOJ Repo (%) (A) 5.25 J$/US$ (Weighted Avg) NIR (US$B) Net Remittances (US$M) (P) (P) (P) Actual as at tember 21,

2 DOMESTIC ECONOMIC INDICATORS Inflation Year Month CPI Index 2015 Monthly % Change Calendar YTD % Change Fiscal YTD % Change Apr Jun Aug Month Point- To-Point (%) Consumer inflation, as measured by the Consumer Price Index, was influenced by the drought conditions that continue to persist and impacted the heaviest weighted division, Food and Non-Alcoholic Beverages. Lower electricity rates, petrol prices and airfares tempered the overall price increases. Producer Prices, in y, tempered somewhat when compared with June. The Index for the Mining & Quarrying industry increased by 0.2%, compared with 0.7% in June. The 12-month point-to-point rate was a decline of 1.9%, in comparison to last month s point-to-point rate of an increase of 8.8%. The Manufacturing industry registered an overall decline in prices of 0.9% for the month of y, compared with a decline of 0.1% in June. The 12-month point-to-point rate for y was a decline of 4.3%, compared with a decrease of 2.8% for the 12- months ended June. DIVISION % Change Food and Non-Alcoholic Beverages 2.1 Alcoholic Beverages and Tobacco 0.2 Clothing and Footwear 0.3 Housing, Water, Electricity, Gas and Other Fuels -2.3 Furnishings, Household Equipment and Routine Household Maintenance 0.2 Health 0.1 Transport -0.5 Communication 0.0 Recreation and Culture 0.4 Education 0.0 Restaurants and Accommodation Services 0.2 Miscellaneous Goods and Services 1.3 All Divisions All Items 0.8 The regional indices showed month over month changes for all 3 regions as: Greater Kingston Metropolitan Area up 1.4%, Other Urban Centres up 0.6%, and Rural Areas up 0.4%. 2

3 11.00% 12-Month Point-To-Point Inflation 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% J M M J S N J M M J S N J M M J S N J M M J Interest Rates TENOR 28-Day 91-Day 182 Day 2015 Month Instrument T-Bill (%) BOJ CD (%) T-Bill (%) T-Bill (%) Apr Jun Aug

4 T-Bill Yields Day 91-Day 182-Day GOJ Fiscal Operations JMD Million Monthly Provisional 2015 Jun MoM % Diff. YoY % Diff. Revenue & Grants 33, , , PAYE 5, , , Companies (ex Bauxite/Alumina) 1, , , GCT (Local) 5, , , GCT (Imports) 6, , , Custom Duty 2, , , Expenditure 40, , , Interest 14, , , Capital Expenditure , , Fiscal Surplus -7, , , Primary Surplus 7, , , JMD Million Fiscal Year-to-Date Apr Provisional Budget % Deviation Revenue & Grants 136, , PAYE 22, ,

5 Fiscal Year-to-Date Apr JMD Million Provisional Budget % Deviation Companies (ex Bauxite/Alumina) 8, , GCT (Local) 24, , GCT (Imports) 21, , Custom Duty 9, , Expenditure 154, , Interest 45, , Capital Expenditure 9, , Fiscal Surplus -17, , Primary Surplus 27, , Balance of Payments External Merchandise Trade US$Million Difference % Difference Expenditure on Imports 2, , Earnings from Exports Trade Surplus -1, ,

6 Remittances Remittances by Source Country (-) 1, Other CAY CAN UK USA Net International Reserves NET INTERNATIONAL RESERVES Year Month Stock (USD M) Monthly (USD M) 2015 Gross Reserves in Weeks of Goods Imports Gross Reserves in Weeks of Goods & Services Imports 2, Apr 2, , Jun 2, , Aug 2,

7 US$M 3, , , , , Weeks of Goods & Services Imports NIR Gross Res in Weeks Benchmark Gross Res in Weeks Exchange Rates EXCHANGE RATES August 2015 Rate per unit of FX Change (%) 1-Month 12-Month YTD JMD/USD JMD/GBP JMD/CAD

8 2012-Aug 2015 JMD/USD,JMD/CAD JMD/GBP JMD/USD JMD/CAD Stock ket Stock ket Summary- tember 21, 2015 Index Value % Change (YTD) JSE ket Index 96, JSE Select Index 2, JSE All Jamaican Composite 106, JSE Junior ket Index JSE USD Equities Index OVERSEAS ECONOMIC NEWS BITES Capital kets Global sovereign solvency is deteriorating as many debt payments are missed, according to a database at the Bank of Canada. Global banks are coming under stress as emerging markets cool off, after benefiting greatly from financing their expansion. Banks might encounter difficulty replacing generous returns on equity that they once enjoyed from 8

9 EM operations. Meanwhile, if European regulators achieve their goal of evening the playing field for financial institutions, major banks could face a EUR26B capital shortage. Central banks carried much of the load to get the world through the financial crisis, leaving markets dependent on them, according to the Economist. kets could face an enormous backlash should the central banks appear to falter. Latin America & the Caribbean Dr. Keith Rowley led Trinidad s People s National Movement (PNM) to victory at the polls on tember 7, 2015, capturing 23 of the 41 constituencies in the country s general election. North America According to the Federal Reserve (Fed), the US economy is continuing to grow modestly largely as a result of increased activity in the housing market and strengthening auto sales. Head of the Fed, et Yellen, says uncertainty in economies including China persuaded policymakers to wait in tember before raising the benchmark interest rate, despite the US economy performing well & creating jobs. Recent volatility in equity markets could prompt the Fed to hold off on any interest rate increase until year-end, according to economists, analysts and other central bank observers. The US economy expanded an annualized 3.7% in Q2, according to the Commerce Department's revised estimate. Growth was driven by business investment, government spending and consumer spending. Canada's economy fell into recession in Q2 as businesses reduced investment in response to falling oil prices. Economists believe this will be short-lived and the economy could emerge from recession in this quarter. Europe European Central Bank President io Draghi has hinted that additional stimulus via further quantitative easing could be implemented if inflation forecasts weaken significantly. Alexis Tsipras Syriza party won 35.5% of the vote in Sunday s election. He will, once again, become prime minister and form a coalition government. German business optimism rose this month, unaffected by signs that the global economy is headed into a "slump." Moody s Investors Service downgraded France s bond rating to Aa2 from Aa1 and assigned a stable outlook, indicating that it expects France s economic recovery to remain significantly slower than recoveries observed over the past few decades. Ukraine has said that its creditors have agreed to a debt-restructuring package that includes a 20% write-down in the principal they are owed and a 4-year extension of the repayment period to Debt repayment will be suspended in any year that Ukraine's economy fails to grow 3%. 9

10 Russia has downgraded projected GDP growth this year to a 3.3% decline as western sanctions and falling energy prices cut into revenue. It is also systematically dismantling budget procedures to cope with volatility in the energy market, which has slashed oil revenue. Asia Japan's real wages have posted their 1 st increase (0.3%) in more than 2 years, according to the Ministry of Health, Labor & Welfare, after being in a general decline for 4 years. Nevertheless, Standard & Poor s (S&) lowered Japan s long-term credit rating to A+, judging Abenomics no longer up to the task of buoying Japan s economy. China has lowered its official growth figure for 2014 to 7.3% from the previously announced 7.4%. Sources: Statistical Institute of Jamaica (STATIN), Ministry of Finance and Planning (MOF), Bank of Jamaica (BOJ), Jamaica Stock Exchange (JSE), Financial Times, The Economist, Trinidad Daily Express, The New York Times, Reuters, The Guardian (London), ket News International, CNBC/Reuters, EuroNews.com (France), Deutsche Welle (Germany), Bloomberg, Xinhuanet.com (China), The Telegraph (London) Disclaimer: This Research Paper is for information purposes only. The information stated herein may reflect the opinion and views of VM Wealth Management in relation to market conditions and does not constitute any representation or warranties in relation to investment returns and the credibility of the sources of information relied upon in the preparation of this report, without further research and verification. Before making any investment decision, please consult a VM Wealth Management Advisor. 10