Friday, October 30, 2009

The economy must adjust to develop

From time to time, I talk to business people in Jamaica who tell me that with each passing day business is getting more and more difficult, as buyers are not only spending less but are taking longer to pay.

We see also where financial institutions have been reporting a fall-off in consumer loans, and targeting the small and micro business sectors.

Added to this we see where some 30,000 jobs have been lost since the start of the year, and my own expectation is that we may see another 15,000 more in job losses before the end of the fiscal year.

Money circulation
The fact is that real money in circulation has taken a beating, and more importantly the consumer purchasing power has taken a severe beating. When we speak about a vibrant economy it is important to remember that this is only possible with spending power in the hands of the average consumer, as we have seen in the US, which has had to introduce a very large stimulus package to keep their economy going.

The most recent US data has shown that the last quarter GDP has increased by 3.5 per cent but this in my view was driven by stimulus money more than any real recovery in the economy, as job losses still continue to mount.

In Jamaica's case, having spent all our future income already, we have no "savings" to create any stimulus for the economy. The fact is that the Jamaican consumer has been hit really hard over the past few months, and this trend I expect will continue for at least another few months. But this is necessary if we are to change the current economic structure of the country and reposition ourselves for development.
The following developments have caused havoc for the local consumer:

. 30,000 persons, or approximately 2.3 per cent of the labour force, have lost jobs since the start of the year;

. Real incomes have declined by about 10 to 14 per cent, as wages and salaries have been kept flat for the most part while we have seen inflation of 14 per cent in the last fiscal year; and

. There have been increases in taxes, food prices, fuel prices, and other basic items, further eroding the purchasing power of consumers.

This means that total consumer purchasing power has declined rapidly. Add to this the losses sustained by consumers in the unregulated investment schemes, and the fact that some have been paying off loans or saving more in anticipation of more difficult times, and you have a scenario where consumer spending has declined significantly. So even though the absolute amount of money in circulation may not be much different from what it was a year ago, the fact is that the real expenditure has declined significantly (even so, the BOJ has reported that the expansion in money supply was lower than projected). One could easily expect that real consumer expenditure could have declined by about 25 per cent year over year.

So what all of this means is that businesses are inevitably going to suffer and I expect that we will see business fallouts accelerating into the first quarter of 2010. In fact, when the car dealers received the recent stimulus package I was on a programme with two of them professing how happy they were with the stimulus. I told them that it would not make a difference and car sales would continue to decline. The fact is that consumer spending is driven by how many persons have jobs, expectations, and the purchasing power of consumers. So if one were to pull the stimulus money out of the US economy, there would no doubt be a decline once again.

Consumer spending necessary
Creating stimulus packages with no positive adjustment to the spending power of consumers will have little or no effect. The lesson from this is that instead of providing stimulus to the businesses, the government would be better off providing stimulus packages to the consumer. In the US, for example, the stimulus came mostly in the way of programmes such as the cash for clunkers, government employment projects, and extending unemployment benefits. This is the only way to positively impact the economy.

The Observer's Fashion Night Out is an innovative way of providing a stimulus to consumers as it provides them with greater purchasing power through lower prices. My own prediction is that the overall night will be relatively better for the merchants, but the downward trend in business will continue after the night is over. Businesses in clothing and other basic necessities should fare better. This one night will not develop any long-term loyalty, as loyalty in today's economy only comes through much lower prices.

But the fact is that this adjustment in the economy, through business fall-outs and lower consumer purchasing power, is necessary if the economy is going to develop. Jamaicans have for a long time lived above our means, thereby running up a significant trade deficit. The only way that we have been able to keep our heads above water, and avoid drowning, is to put on the debt "life jacket". Continuing the course of borrowing our way out of the problem will only make the adjustment more violent when it comes, as it is not possible to borrow forever. So the sooner we make the adjustment, the better it will be for us. Because we have taken too long to make this adjustment I think the next few months will be an experience in pain for many.

The role of the government in all of this must be to (1) encourage investment and (2) more importantly to ensure that the adjustment is as painless as possible. And this latter role is critical if we are to ensure the economy's adjustment in as rapid a timeframe and painless a manner as possible. Any prolonged adjustment period and too much pain will be bad for the country, and so careful policy implementation is going to be critical. Even if we were to select the appropriate policies and implement them, we could still have more challenges than we want.

What we will see is that businesses that rely on luxury items and imports are going to be the first to fail. Outside of that, businesses that fail to employ the necessary professional expertise to help them through this time will run into problems also. There are some that were more proactive than others and sought the assistance from last year and were able to adjust way in advance of the economic onslaught. Those less prepared will either see their capital depleted or will fade away into the sunset.

So even though the US economy is showing signs of improvement this is not going to have any short -term positive impact for Jamaica. We will continue to see the economy being weighted down by our past decisions. This adjustment, however, is necessary in order for us to put a halt to the stagnation we have found ourselves in since the 1970s (with a small moment of hope during the end of the 1980s) and start on the path of development.

As usual, however, the road we take is going to depend on the policy choices we make.

47 comments:

Anonymous said...

Hurrah, that's what I was seeking for, what a material! present here at this blog, thanks admin of this site.

Here is my weblog: bmr calculator to lose weight

Anonymous said...

It's truly very difficult in this active life to listen news on Television, therefore I just use internet for that reason, and take the hottest news.

My website: ketone diet

Anonymous said...

My brother recommended I would possibly like this blog.
He was totally right. This post truly made my day. You can not
consider just how much time I had spent for this information!

Thank you!

Feel free to surf to my web-site; Calories Burnt Walking

Anonymous said...

Very good information. Lucky me I ran across your website by accident (stumbleupon).
I have saved it for later!

my site registry cleaners

Anonymous said...

This paragraph will assist the internet visitors for building up new
weblog or even a weblog from start to end.

Feel free to surf to my blog basal metabolic rate calculator

Anonymous said...

Good day! Do you know if they make any plugins to safeguard against hackers?

I'm kinda paranoid about losing everything I've worked hard on.
Any tips?

Here is my webpage how to lose weight fast for women

Anonymous said...

Hello, I think your site might be having browser compatibility issues.
When I look at your website in Ie, it looks fine but when opening in Internet Explorer, it has
some overlapping. I just wanted to give you a quick heads up!
Other then that, great blog!

Also visit my webpage :: how to lose weight fast for women

Anonymous said...

I have been browsing online greater than 3 hours
nowadays, but I by no means found any interesting article like yours.
It is pretty price enough for me. Personally, if all site owners
and bloggers made excellent content material as you did,
the web might be much more helpful than ever before.


Here is my website ... bankruptcy laws in florida

Anonymous said...

Hello, I enjoy reading through your post. I like to write a little comment to support you.


Here is my web blog: airplane games

Anonymous said...

It's the best time to make some plans for the future and it is time to be happy. I've read this post
and if I could I wish to suggest you some interesting things or
suggestions. Maybe you could write next articles referring
to this article. I desire to read even more things about it!



Feel free to surf to my weblog :: how to calculate bmr

Anonymous said...

I used to be suggested this web site through my cousin. I'm no longer certain whether or not this publish is written via him as nobody else understand such detailed about my problem. You are amazing! Thanks!

my homepage does raspberry ketones work

Anonymous said...

Remarkable! Its in fact amazing paragraph, I have got much clear idea concerning from this post.


Feel free to visit my web site walking calculator

Anonymous said...

Wow! After all I got a webpage from where I be able to
in fact obtain valuable facts regarding my study and
knowledge.

Also visit my site :: walking calorie calculator

Anonymous said...

Hi there to every one, the contents present at this web site are genuinely awesome for people knowledge, well, keep
up the good work fellows.

Visit my blog ... diets that work for women

Anonymous said...

I just like the valuable info you supply on your articles.
I will bookmark your blog and test once more right here regularly.

I'm slightly sure I'll learn a lot of new stuff right right here!
Best of luck for the next!

Also visit my web site - diets that work

Anonymous said...

Hello this is kind of of off topic but I was wanting to know if blogs use WYSIWYG editors or if you have to manually code with HTML.
I'm starting a blog soon but have no coding knowledge so I wanted to get advice from someone with experience. Any help would be enormously appreciated!

My web-site: diet plans that work

Anonymous said...

Hey! I just wanted to ask if you ever have any issues with hackers?
My last blog (wordpress) was hacked and I ended up losing
many months of hard work due to no data backup. Do you
have any solutions to stop hackers?

Here is my web page :: http://slimberrycleanseblog.com

Anonymous said...

Appreciating the persistence you put into your site and in
depth information you offer. It's nice to come across a blog every once in a while that isn't
the same unwanted rehashed material. Fantastic read!
I've bookmarked your site and I'm including your RSS feeds
to my Google account.

Also visit my website; raspberry ketones

Anonymous said...

Hey! This is kind of off topic but I need some help from an established blog.
Is it very hard to set up your own blog? I'm not very techincal but I can figure things out pretty fast. I'm thinking
about setting up my own but I'm not sure where to start. Do you have any ideas or suggestions? Appreciate it

My homepage :: safe diets

Anonymous said...

Hello there, just became alert to your blog through Google,
and found that it is truly informative. I'm going to watch out for brussels. I'll appreciate
if you continue this in future. Lots of people will be benefited from your writing.

Cheers!

Here is my weblog :: bmi calculator female

Anonymous said...

It's an amazing piece of writing for all the web users; they will obtain benefit from it I am sure.

my blog best diet plan for women

Anonymous said...

I know this site provides quality dependent articles or
reviews and additional data, is there any other web
page which presents such stuff in quality?

Also visit my site mouse click the up coming article

Anonymous said...

This is a topic which is close to my heart.
.. Cheers! Exactly where are your contact details though?


my site: how much should i weigh for my height and age

Anonymous said...

Hi, i think that i saw you visited my site so i came to “return the favor”.

I'm attempting to find things to enhance my web site!I suppose its ok to use a few of your ideas!!

Here is my weblog: healthy diet plans for women

Anonymous said...

Hey this is kind of of off topic but I was wanting to know if blogs use WYSIWYG editors or if you have to manually code with HTML.
I'm starting a blog soon but have no coding expertise so I wanted to get advice from someone with experience. Any help would be enormously appreciated!

Look into my page :: diet plan to lose weight

Anonymous said...

When someone writes an article he/she retains the thought
of a user in his/her brain that how a user can know it.
So that's why this paragraph is outstdanding. Thanks!

Also visit my page ... best diet

Anonymous said...

What's up i am kavin, its my first time to commenting anywhere, when i read this paragraph i thought i could also make comment due to this brilliant article.

My homepage; diet plan

Anonymous said...

Excellent blog here! Also your web site loads up fast!
What web host are you using? Can I get your affiliate link to
your host? I wish my site loaded up as fast as yours
lol

Feel free to surf to my site :: waist hip ratio calculator

Anonymous said...

I was recommended this website by way of my cousin.
I'm not certain whether this put up is written via him as no one else know such precise approximately my difficulty. You're amazing!

Thank you!

Feel free to surf to my site; buy acai ultra

Anonymous said...

I have been surfing on-line greater than three hours today, yet I never
found any attention-grabbing article like yours. It is beautiful value enough for me.
In my view, if all webmasters and bloggers made good content as you did, the web will probably be much more useful than
ever before.

Have a look at my web blog ... easy diets that work

Anonymous said...

If some one wishes expert view on the topic of blogging and site-building
then i suggest him/her to pay a quick visit this website,
Keep up the fastidious job.

Feel free to visit my page Diet Green Coffee

Anonymous said...

Wonderful beat ! I would like to apprentice while you amend your web site, how can i subscribe for a blog website?
The account helped me a acceptable deal. I had been a little
bit acquainted of this your broadcast provided bright clear idea

Feel free to surf to my site - Diets That Work

Anonymous said...

Do you mind if I quote a few of your posts as long as I provide credit and sources back to your webpage?
My website is in the very same area of interest as yours and my users would certainly benefit from a lot of the information
you present here. Please let me know if this alright with you.

Many thanks!

My web site: easy diets that work

Anonymous said...

Wow, wonderful weblog layout! How lengthy have you ever been blogging for?
you make running a blog look easy. The whole look of your website is
fantastic, let alone the content!

Feel free to surf to my web page :: basal metabolic rate calculator

Anonymous said...

Very great post. I just stumbled upon your blog and wanted to mention that
I've really loved surfing around your blog posts. After all I will be subscribing on your rss feed and I am hoping you write once more soon!

My web page: bmr calculator to lose weight

Anonymous said...

I used to be able to find good information from your blog
articles.

Feel free to visit my weblog - How to calculate bmr

Anonymous said...

Magnificent site. A lot of helpful info here. I'm sending it to a few pals ans also sharing in delicious. And of course, thanks in your sweat!

Check out my web-site :: easy diets that work

Anonymous said...

Howdy just wanted to give you a quick heads up and let you
know a few of the images aren't loading correctly. I'm not sure why but I think its a linking issue.
I've tried it in two different web browsers and both show the same results.

My weblog; how to lose weight quickly

Anonymous said...

Hi there friends, how is the whole thing, and what you wish for to say concerning
this piece of writing, in my view its actually amazing for me.


Stop by my web-site: Gebruikerspagina

Anonymous said...

Thank you for the auspicious writeup. It in fact was a amusement account
it. Look advanced to more added agreeable from you!
By the way, how can we communicate?

my weblog - Saffron Extracts

Anonymous said...

I blog often and I truly appreciate your content.
Your article has really peaked my interest.

I'm going to take a note of your blog and keep checking for new information about once a week. I opted in for your RSS feed too.

My weblog - Best Weight Loss Product

Anonymous said...

Good day! Would you mind if I share your blog with my facebook group?
There's a lot of people that I think would really enjoy your content. Please let me know. Many thanks

Look at my blog :: Diets That Work For Women

Anonymous said...

Hi to all, since I am actually eager of reading this web site's post to be updated daily. It contains pleasant information.

Also visit my website - Diet Patch Trial

Anonymous said...

My spouse and I stumbled over here by a different web page and
thought I should check things out. I like what I see so now i'm following you. Look forward to finding out about your web page yet again.

Also visit my web-site; where to buy a used car

Anonymous said...

When I initially commеntеd I
clickeԁ the "Notify me when new comments are added" сheckbox anԁ now еaсh time a cοmment iѕ addеd I get sеveral emails
ωith the same cоmment. Is therе any way уou сan remove me
from that serνіce? Αppгeciаte it!


Feеl free to suгf to my page:
cashforcarsbristol.co.uk

Anonymous said...

Wow, incredible weblog format! How lengthy have you been blogging for?
you make blogging glance easy. The overall glance of your website
is great, as well as the content!

Check out my homepage :: Slim Lipo

Anonymous said...

Awesome! Its truly remarkable post, I have got much clear idea about from this post.



my web site - raspberry ketone diet *www.goodthai.net*