Economic Overview - February 2016 EXECUTIVE SUMMARY The first tranche of the more than $60B payout of debt maturities occurred earlier this month, with the remainder expected to be Summary Economic Indicators paid out this week. Additionally, general elections will take place on Thursday. So far there have been no disruptions to market activities. On the stock market, it has been business as usual whereas, on the bond market, investors have adopted a wait and see attitude. Performance in other key economic variables for the past month included: Inflation in uary was negative at 0.4%, mainly because of falling oil prices. The 12-month point-to-point inflation rate was 3.7%. Yields on Treasury Bills fell in February, with the rate on the 28-Day tenor falling sharply by 50bps. The unemployment rate in October was slightly higher than in y due to a combination of an increase in the Labour Force & a decrease in the Employed Labour Force. Both the fiscal deficit & primary surplus outturn for the fiscal year-to-december were ahead of budget. Expenditure on imports continues to decline for the uary-october period, reflecting lower global oil prices as well as lower import volumes of fuels. Despite lower earnings from exports, the balance of trade continues to improve. Remittance inflows continued to increase in October. 2015 2016 Actual (A) Projections (P) Nov Dec Feb Dec 12M PTP Inflation (%) 3.07 3.64 3.72 4.76 3.75 Interest Rates (%) 180D T-Bill (%) 6.09 6.04 5.94 5.73 (A) 5.60 30D BOJ Repo (%) 5.25 5.25 5.25 5.25 (A) 5.00 J$/US$ (Weighted Avg) 119.86 120.24 120.86 121.64 1 127.94 NIR (US$M) 2,343.34 2,437.27 2,200.12 2,180.00 2,880.00 Net Remittances (US$M) 160.00(P) 195.00(P) 152.00(P) 156.00 205.00 The stock of Net International Reserves (NIR) declined in uary but remained comfortably above the international benchmark of 12 weeks of goods & services imports. The stock market has seen some correction in February, after surging strongly for nearly a year, although some stocks continue to outperform. Overseas, UK Prime Minister David Cameron has reached an agreement with EU leaders giving the UK special status within the bloc. He is expected to make his case to Parliament for the UK to remain in the EU ahead of a referendum on EU membership scheduled for June 23. An agreement on a freeze on production of oil is expected soon. Details on a cap on oil output agreed upon by Saudi Arabia, Russia, Venezuela & Qatar should be finalized soon, according to Russian Energy Minister Alexander Novak. Negotiations are planned with non-opec nations, including Mexico & Norway. 1 Actual as at February 22, 2016 1
DOMESTIC ECONOMIC INDICATORS Inflation Year Month CPI Index 2015 Monthly % Change Calendar YTD % Change Fiscal YTD % Change Aug 229.0 0.8 2.2 2.8 3.5 Sep 230.0 0.4 2.6 3.3 1.8 Oct 230.7 0.3 2.9 3.6 2.0 Nov 231.8 0.5 3.4 4.1 3.1 Dec 232.3 0.2 3.6 4.3 3.6 2016 231.3-0.4 3.2 3.9 3.7 12-Month Point- To-Point (%) Overall Consumer inflation in uary, as measured by the Consumer Price Index, was influenced by the highest weighted division, Food and Non-Alcoholic Beverages. Vegetables and Starchy Foods recorded a decline in its index of 3.4% due to lower prices. Producer price changes in December were 0.3% and -1.4% respectively for the "Mining & Quarrying" and "Manufacturing" industries. The 12-month point-to-point changes were -1.6% and -4.0% respectively. DIVISION % Change Food and Non-Alcoholic Beverages -0.7 Alcoholic Beverages and Tobacco 0.3 Clothing and Footwear 0.1 Housing, Water, Electricity, Gas and Other Fuels -1.4 Furnishings, Household Equipment and Routine Household Maintenance 0.2 Health 0.0 Transport -0.4 Communication 0.0 Recreation and Culture 0.4 Education 0.0 Restaurants and Accommodation Services 0.9 Miscellaneous Goods and Services 0.3 All Divisions All Items -0.4 The regional indices showed month over month changes for all 3 regions as: Greater Kingston Metropolitan Area down 0.4%, Other Urban Centres down 0.5%, and Rural Areas down 0.5%. 2
11.00% 12-Month Point-To-Point Inflation 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% J M M J S N J M M J S N J M M J S N J M M J S N J 2012 2013 2014 2015 2016 Interest Rates TENOR 28-Day 91-Day 182 Day Instrument Month T-Bill (%) BOJ CD (%) T-Bill (%) T-Bill (%) 2015 2016 Sep 6.23 5.25 6.20 6.35 Oct 6.20 5.25 6.13 6.23 Nov 5.91 5.25 6.15 6.09 Dec 5.97 5.25 5.96 6.04 6.04 5.25 5.94 5.94 Feb 5.54 5.25 6.00 5.73 3
T-Bill Yields 9.50 9.00 8.50 8.00 7.50 7.00 6.50 6.00 5.50 5.00 Mar May Sep Nov Mar May Sep Nov Mar May Sep Nov Mar May Sep Nov 2012 2013 2014 2015 2016 28-Day 91-Day 182-Day Labour Market 2014 2015 y October uary April y October Labour Force 1,304,500 1,310,200 1,320,800 1,301,100 1,320,500 1,325,200 Employed Labour Force 1,124,600 1,124,000 1,132,700 1,129,100 1,147,500 1,146,600 Unemployed Labour Force 179,900 186,200 188,100 172,000 173,000 178,600 Outside the Labour Force 778,300 772,600 764,900 784,900 785,400 761,700 Unemployment Rate (%) 13.8 14.2 14.2 13.2 13.1 13.5 GOJ Fiscal Operations JMD Million Monthly Provisional Dec 2015 Nov 2015 Dec 2014 MoM % Diff. YoY % Diff. Revenue & Grants 40,693.2 31,961.3 38,855.8 27.3 4.7 PAYE 6,366.8 6,126.5 5,482.6 3.9 16.1 Companies (ex Bauxite/Alumina) 4,513.6 324.6 3,492.5 1,290.5 29.2 GCT (Local) 5,344.3 5,562.6 5,348.6-3.9-0.1 GCT (Imports) 6,459.2 6,076.2 6,701.9 6.3-3.6 Custom Duty 3,089.7 2,776.9 2,839.5 11.3 8.8 Expenditure 43,035.8 36,466.1 42,721.5 18.0 0.7 4
Monthly Provisional JMD Million Dec 2015 Nov 2015 Dec 2014 MoM % Diff. YoY % Diff. Interest 12,537.0 6,531.5 15,975.2 91.9-21.5 Capital Expenditure 5,298.5 2,364.8 1,668.8 124.1 217.5 Fiscal Surplus -2,342.6-4,504.8-3,865.7 48.0 39.4 Primary Surplus 10,194.4 2,026.7 12,109.5 403.0-15.8 JMD Million Fiscal Year-to-Date Apr-Dec 2015 Provisional Budget % Deviation Revenue & Grants 318,709.8 315,598.5 1.0 PAYE 52,140.5 51,568.4 1.1 Companies (ex Bauxite/Alumina) 19,045.7 17,313.9 10.0 GCT (Local) 52,422.5 52,323.5 0.2 GCT (Imports) 50,690.6 49,255.3 2.9 Custom Duty 22,514.1 23,378.0-3.7 Expenditure 343,663.1 347,008.0-1.0 Interest 90,941.6 95,804.9-5.1 Capital Expenditure 26,017.2 26,283.7-1.0 Fiscal Surplus -24,953.3-31,409.5 20.6 Primary Surplus 65,988.3 64,395.4 2.5 Balance of Payments External Merchandise Trade -Oct 2015 US$Million 2015 2014 Difference % Difference Expenditure on Imports 4,166.4 4,793.7-627.3-13.1 Earnings from Exports 1,054.2 1,232.7-178.5-14.5 Trade Surplus -3,112.2-3,561.0 448.8 12.6 5
Remittances Gross Remittances by Source Country (-Oct) 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0-2009 2010 2011 2012 2013 2014 2015 USA 827.8 914.3 967.8 992.8 1,018 1,068 1,157 UK 260.8 264.9 283.2 274.9 261.8 284.6 270.2 CAN 131.4 159.2 189.9 199.0 204.9 208.6 191.0 CAY 144.8 116.4 111.7 102.2 99.7 101.3 101.6 Other 102.0 103.0 115.5 113.9 117.4 121.1 124.6 Net International Reserves NET INTERNATIONAL RESERVES Year Month Stock (USD M) Monthly (USD M) 2015 Gross Reserves in Weeks of Goods Imports Gross Reserves in Weeks of Goods & Services Imports Aug 2,535.35 171.61 33.01 22.85 Sep 2,441.88-93.47 32.34 22.39 Oct 2,454.31 12.43 33.15 22.83 Nov 2,343.34-110.97 31.80 21.90 Dec 2,437.27 93.93 34.61 23.45 2016 2,200.12-237.15 31.71 21.49 6
3,000.00 25.00 23.00 US$M 2,500.00 2,000.00 1,500.00 1,000.00 500.00 21.00 19.00 17.00 15.00 13.00 11.00 9.00 Weeks of Goods & Services Imports 7.00-5.00 Apr Oct Apr Oct Apr Oct Apr Oct 2012 2013 2014 2015 2016 NIR Gross Res in Weeks Benchmark Gross Res in Weeks Exchange Rates EXCHANGE RATES uary 2016 Change (%) Rate per unit of FX 1-Month 12-Month YTD JMD/USD 120.86-0.51-4.58-0.51 JMD/GBP 172.36 3.69 1.30 3.69 JMD/CAD 84.86 2.78 13.35 2.78 7
2012-2016 130 200 JMD/USD,JMD/CAD 120 110 100 90 80 190 180 170 160 150 140 130 JMD/GBP 70 120 May Sep May Sep May Sep May Sep 2012 2013 2014 2015 2016 JMD/USD JMD/CAD JMD/GBP Stock Market Stock Market Summary February 23, 2016 % Change Avg Annual % Change Index Value Daily WTD MTD YTD 1 YR 5 YR 10 YR JSE Market Index 159,273.70 0.84 1.20-0.67 5.69 99.39 17.23 6.48 JSE Select Index 5,585.51 1.30 0.87 0.96 12.16 133.64 30.37 11.82 JSE All Jamaican Composite 176,953.64 0.85 1.21-0.67 5.73 101.02 23.49 9.14 JSE Junior Market Index 2,119.15 0.62-2.91-2.56 18.32 196.24 N/A N/A JSE USD Equities Index 158.98 8.71 8.71-2.26-1.29 20.21 N/A N/A 8
OVERSEAS ECONOMIC NEWS BITES Economic Report (Feb-16) Commodities An agreement on a freeze on production of oil is expected soon. Details on a cap on oil output agreed upon by Saudi Arabia, Russia, Venezuela & Qatar should be finalized soon, according to Russian Energy Minister Alexander Novak. Negotiations are planned with non-opec nations, including Mexico & Norway. Long positions in West Texas Intermediate (WTI) crude have reached the highest level since June, with investors increasingly betting on higher oil prices. Latin America & the Caribbean Standard & Poor s (S&P) lowered its foreign-currency debt rating on Brazil from BB+ to BB, putting Brazil s creditworthiness in the same class as Bolivia, Guatemala & Paraguay. Petroleo Brasileiro s (Petrobras) rating was also cut to B+. North America The US core consumer price index jumped to an annualized rate of 2.2% in uary, surprising markets & increasing the expectation of a Federal Reserve interest rate increase. Americans voluntarily leaving their jobs have reached a 9-year high, a sign of an improving labour market. In uary, jobs available but unfilled rose to a seasonally adjusted 5.61M, the 2 nd -largest total since 2001. Europe UK Prime Minister David Cameron has reached an agreement with EU leaders giving the UK special status within the bloc. He is expected to make his case to Parliament for the UK to remain in the EU ahead of a referendum on EU membership scheduled for June 23. The European sovereign-debt market is showing signs of crisis with German bunds up as investors seek havens, while Italian & Spanish bonds drop & Portuguese debt barely avoids a high-yield rating that would disqualify it from ECB quantitative easing. Sweden s central bank, Riksbank, has reduced its benchmark interest rate to -0.5%, despite a growing economy, citing low inflation. Asian Pacific The Bank of Japan has reduced a key interest rate, applied to current accounts held at the central bank, to - 0.1% & slashed its inflation prediction for fiscal 2016 to 0.8% from 1.4%. Its Governor Haruhiko Kuroda has hinted that he is backing away from the notion that expanding the monetary base is key to reaching 2% inflation. The Japanese 10-year government bond yield has fallen to zero, a record low, as investors have been moving capital into government bonds, which some consider risk-free, in reaction to stock market weakness & falling oil prices. In Q4, Japan s economy contracted at an annual rate of 1.4%, dragged down by weak domestic consumption & a 6% rise in the yen, which hurts exports. The economy has shifted between expansion & contraction for 3 years. 9
Japan s current account surplus climbed in 2015 due to weak oil prices. The surplus was more than 6 times that for 2014. Japan s corporate producer price index dropped 3.1% YOY in uary, extending the downward trend to 10 months, and could further delay efforts to boost retail inflation to 2%. The Indian economy is on track to expand 7.6% in fiscal 2016, following growth of 7.3% in the December quarter, driven by an unexpected surge in manufacturing. Sources: Statistical Institute of Jamaica (STATIN), Ministry of Finance and Planning (MOF), Bank of Jamaica (BOJ), Jamaica Stock Exchange (JSE), Bloomberg, Reuters, BBC, Market News International, The Telegraph (London), Nikkei Asian Review, The Japanese News by the Yomiuri, LiveMint.com (India) 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