Derick Latibeaudiere, governor of the Bank of Jamaica. - Rudolph Brown/Chief Photographer

The Bank of Jamaica said this week that output was likely to be flat in the December quarter, but central bank governor Derick Latibeaudiere steadfastly avoided the word recession even though the economy contracted 0.3 per cent during the nine months between January to September.

A recession is classically defined as two consecutive quarters of negative growth.

The BOJ specific GDP forecast for the December quarter ranges between a decline of 0.1 per cent and growth of half of one per cent.

But asked at his quarterly briefing Wednesday whether Jamaica could slip into recession, Latibeaudiere repeated that he expected the economy to experience zero growth.

"For fiscal year 2008/09, the bank's revised forecast suggests that economic growth will be relatively flat compared with our previous projection of growth in the range of 1.2 per cent to 2.2 per cent," said the central bank chief. "The downward revision for the fiscal year is based on the expected impact of a protracted slowdown in the global economy."

Expect conditions to improve

Latibeaudiere said he did not expect conditions in Jamaica to improve until and unless the global situation changes.

The central bank's latest economic forecast came days after the Planning Institute of Jamaica's (PIOJ) second quarter review, suggesting that the economy is likely to shrink by 0.5 per cent.

At Wednesday's briefing, BOJ readjusted, this time mildly downward, the inflation target for the fiscal year. The central bank now expects consumer prices to rise between 14 per cent and 16 per cent, one percentage point lower at either side of the range than for its previous forecast for the fiscal year.

At the start of the fiscal year, though, it had expected that inflation would range between seven per cent and nine per cent.

Latibeaudiere, however, cautioned that the recent sharp depreciation of the Jamaica dollar - by more than five per cent in a month - could offset some of the impact of declining commodity prices. At the end of the quarter the weighted average selling rate of the Jamaica dollar against the greenback depreciated by 1.08 per cent.

"Given the pass-through of movements in the exchange rate to domestic prices, there is likely to be some countervailing impact from the depreciation in the exchange rate," he said.

The price of oil is now currently below US$50 per barrel, with prices of rice, corn and wheat reflecting decline of 18.5 per cent, 9.7 per cent and 8.0 per cent, respectively, for the September quarter.

Consequently, the central bank has forecast headline inflation in the range of 1.3 per cent to 2.3 per cent for the December quarter.

During the quarter under review the real sector experienced marginal growth, "a continuation of the weak performance observed since the September 2007 quarter," said the b---------ank.

Effects of Gustav

The bank attributed the performance of the economy within the quarter to the continued uncertainty in the global economy and the passage of Tropical Storm Gustav in August.

The main areas of growth during the review period were, the distributive trade, electricity and water and mining and quarrying. Agriculture, transport, storage and communication and manufacturing, as well as the tourism industry, were said to have contracted during the period.

Conceding that the domestic financial market has experienced some instability in recent months, Latibeaudiere said that the central bank acted expeditiously to shore-up and bring back certainty to the market.

He insisted that Jamaica's financial institutions have remained relatively sound and well capitalised.

sabrina.gordon@gleanerjm.com