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Russia’s invasion of Ukraine interrupted the global economy’s rebound from the collapse triggered by the COVID-19 pandemic. Following a solid resurgence of productive activity in 2021, the fall-out from the war has exacerbated already stressed supply chains, aggravating the damage to world trade and spawning far reaching consequences for inflation and economic growth across the globe. The slump in exports from both Russia and Ukraine – as major suppliers of oil and gas, wheat and other primary goods – has intensified the surge in international commodity prices generating the largest shock since the 1970’s. Specifically, the price of WTI crude oil rose 43.1% since December 2021 to US$108/barrel at the end of June 2022 but peaked at US$124/barrel in March, while the IMF’s international food price index climbed 14.3% year-to-date at the end of June. Accordingly, inflation rates in several large economies, including the US and the UK barreled past 9.0% in June, and global central banks have sharply increased benchmark interest rates with efforts squarely focused on battling the tenacious inflation. However, the resultant suppression of consumer demand increases the likelihood of a global recession and has recently sparked fears of stagflation. Already, real GDP in the US declined 0.4% q/q in Q1 2022, while output growth in the UK and Canada both slowed to 0.8% q/q.
Economic activity in the Caribbean opened 2022 at a drastically different position relative to its major trading partners, where output largely returned to pre-pandemic levels by the end of 2021. Even though most markets in the region regained some of the output lost, 2021 recoveries were generally mild due to prolonged pandemic restrictions, a limited tourism rebound and operational challenges with commodity production. Against this background, several markets posted a strengthening recovery in Q1 2022 largely bolstered by an upsurge in tourist arrivals credited to improved capacity and demand, as well as increased output in related sectors. Stay-over arrivals to the region expanded 236% y/y in Q1 2022 reaching near 70% of the corresponding 2019 level, and reflecting a turnaround from all major source markets, while cruise passenger activity continued to build on the modest gains registered in the second half of 2021, but capacity restrictions on vessels kept arrivals significantly below pre-pandemic levels. The improvement in hospitality services coupled with an uptick domestic demand due to the removal of restrictions also spurred increased activity in the distribution, transport and business services sectors. However, preliminary indicators for Trinidad and Tobago suggest a mixed performance in Q1 2022 as oil production registered an uptick but most other categories of energy production slipped, and non-energy output displayed signs of weakening. Meanwhile, Guyana’s non-oil economy expanded y/y in Q1 2022, but oil production fell marginally y/y due to planned maintenance work.
Inflation rates in the Caribbean also spiralled higher reflecting the region’s heavy reliance on imported goods. Global price pressures pushed regional consumer prices (excluding Suriname) higher by 6.0% y/y in March 2022, relative to a 1.2% y/y uptick one year earlier with all markets posting accelerated growth. Most categories of domestic prices recorded increases, but the food, fuel, housing, utilities and transport sectors in particular, posted steep inclines. In response to the soaring inflation and rising inflation expectations, the Bank of Jamaica (BOJ) increased its policy interest rate on the seventh occasion since September 2021, to reach 5.50% effective 30 June 2022.
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