JMEA warns of recession as BOJ raises rates again

The Jamaica Manufacturers and Exporters Association (JMEA) has said the latest interest rate hike by the Bank of Jamaica (BOJ) is putting the Jamaican economy at risk of recession.

The JMEA also disagrees with the central bank that the latest measures are likely to lower demand in the economy and limit companies’ ability to pass on price increases to consumers.

Local manufacturers have been experiencing price increases since 2020 and often have not fully passed these increases on to consumers, but will at some point have to pass on price increases, according to the JMEA.

The BOJ raised its key rate to five percent a year on Friday, following a cumulative increase in key rates of 450 basis points (bps) since October 2021.

In a statement following the announcement, the JMEA said it is “extremely concerned that the BOJ’s monetary policy tightening poses a risk to Jamaica’s short- to medium-term economic growth prospects.”

The JMEA said there is significant uncertainty about Jamaica’s macroeconomic environment, given rising prices and rising interest rates.

It further explained that the current supply chain crisis requires industry players to have access to finance to maintain high inventories, especially at a time when the world is on the brink of famine and countries are embracing their supplies.

“Continuous rate hikes will not ease business, but will only kill operations,” the JMEA said.

According to the JMEA, another rate hike is putting the construction industry at risk. It said mortgage rates had risen to 8.5 percent before this latest rate hike.

The JMEA also noted that the US is at a point where further increases in interest rates could lead to a recession in that market. As such, looming external risks could lead to a downturn in tourism and a reduction in the income of Jamaicans living in the US, which will impact remittances.

Those risks, coupled with domestic issues, would undoubtedly derail any possibility that the economy will meet its growth target of between two and four percent in FY2022/23.

“Our people are facing underemployment and increased costs of food, energy and transportation, and we cannot afford to derail the small improvements in the economy that are currently taking place,” the JMEA said.

Like other countries, Jamaica continues to face adverse macroeconomic conditions due to the COVID-19 pandemic, supply chain and logistical crises, now exacerbated by the war between Ukraine and Russia.

Jamaica’s main trading partners, the US and the UK, have also seen a rise in inflation. In the US, for example, annual inflation accelerated to 8.5 percent in March 2022, the highest since December 1981; Canada was 6.7 percent, the highest since 1997; the UK rose to seven percent, the highest since March 1992.

Jamaica is not alone, but we are extremely vulnerable given our economic reliance on these major economies and years of minimal growth.

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