PIOJ warns of recession as economy contracts

Jamaica’s economy shrank sharply at the end of last year, and the country now faces what the Planning Institute of Jamaica (PIOJ) calls a “negative” short-term outlook—with the real risk of a recession if the slide continues into the current quarter.

Presenting the preliminary outturn for the October–December 2025 quarter at the PIOJ’s quarterly briefing today, Director General Dr Wayne Henry reported that real value added fell by 7.5 per cent compared with the same period of 2024—the steepest quarterly decline since the COVID-19 shock of mid-2020.

“Today, we are reporting an estimated contraction in real value added of 7.5 per cent for the October to December 2025 quarter,” Henry said, stressing that the blow was “largely [the] effect of Hurricane Melissa,” which inflicted widespread wind, storm-surge and flood damage across productive industries.

While grim, the outturn was not as catastrophic as feared in the storm’s immediate aftermath.

“It should be noted, however, that this estimated outturn of 7.5 per cent contraction is better than initially projected immediately after the passage of the hurricane when the economy was forecast to decline within the region of 11 per cent to 13per cent,” he noted, attributing the relative improvement to “the resilience and industriousness of businesses and individuals in rebuilding following the shock.”

The goods-producing industry contracted by 9.3 per cent, with all four constituent industries down.

Agriculture, forestry & fishing led the pull-back, falling 12.6 per cent as Melissa damaged farm infrastructure, crops and livestock.

Hectares reaped plunged 18.6 per cent, while eight of nine domestic crop groups recorded lower yields.

“The other agricultural crops component was estimated to have contracted by 23.6 per cent, with condiments down 45 per cent, legumes 36.9 per cent cereals 33.6 per cent, fruits 33.2 per cent, and vegetables 32.1 per cent,” Henry detailed.

Mining and quarrying suffered an even deeper contraction of 37.3 per cent after the hurricane damaged assets and triggered power outages.

In manufacturing (–7.8 per cent), the food, beverages and tobacco segment weakened as broiler meat (–12.4 per cent), edible oils (–6.8 per cent), flour (–4.9 per cent), beer and stout (–10 per cent), rum and alcohol (–27.7 per cent) and carbonated beverages (–0.9 per cent) all declined—tempered by gains in dairy (+10.4 per cent) and edible fats (+8.7 per cent).

Other manufacturing also fell, largely on reduced demand for petroleum products in storm-hit western parishes: gasoline (–57.5 per cent), jet fuel (–50.3 per cent), and fuel oil (–7.2 per cent).

Construction eased 3.5 per cent amid weaker building and “other construction,” even as sales of construction-related goods rose 13.4 per cent—a sign of pre-storm preparation, immediate recovery work, and momentum from earlier housing starts.

Residential activity slumped, with NHT housing starts down 66.7 per cent and mortgages disbursed lower by 12.4 per cent to $5.5 billion.

Capital spending on civil works also fell; the JPS disbursed $1.539 billion, down 54.5 per cent while JSIF outlays dropped 95.5 per cent to $23.7 million.

The services industry contracted 6.9 per cent, with all nine service industries down.

Electricity, water supply & waste management fell 11.5 per cent on weaker consumption.

Transport & storage contracted 13.6 per cent as passenger movements plunged 34.4 per cent—departures (–35.4 per cent), arrivals (–33.8 per cent)—amid temporary airport closures and repairs.

Tourism, captured under Accommodation & Food Service Activities, was among the hardest hit: real value added shrank 12 per cent as preliminary stopover arrivals for the quarter fell to 425,107 (–40.9 per cent), dragging visitor expenditure down 31.9 per cent to US$771.1 million.

“Accommodation and food service activities… was estimated to have contracted by 12% per cent” Henry said.

Retail and distribution—Wholesale & Retail Trade, Repair and Installation of Machinery and Equipment—slipped 4.9 per cent, reflecting lower real gross sales (–0.5 per cent) and spillovers from weaker agriculture, manufacturing and construction.

Finance & Insurance edged down 0.2 per cent on reduced fees and commissions at deposit-taking institutions.

Looking ahead, the PIOJ expects the slide to continue in the January–March 2026 quarter, projecting a 4-6 per cent year-on-year contraction.

Early indicators are soft: total bauxite production in January fell 33.8 per cent; preliminary airport arrivals were down 36 per cent; and water consumption declined 2.7 per cent.

“Generally, the prospects for the Jamaican economy for the short term are negative,” Henry cautioned, citing weak demand from lower consumer spending and business investment, and heightened geopolitical risks that could lift energy costs and snarl trade.

That raises the spectre of recession.

Henry sought to clarify the formal threshold—two straight seasonally adjusted quarter-on-quarter declines in real GDP—before offering a nuanced verdict: “With Jamaica recording a significant year-on-year decline in the October to December 2025 quarter, and [an] expectation for a further year-on-year contraction in the January to March 2026 quarter, there are concerns regarding the possibility of an economic recession… However, at this stage, it is not likely that Jamaica will experience an economic recession within the short term, barring any unforeseen shocks,” he said.

Still, the baseline is sobering.

For FY2025/26, the PIOJ now projects the economy to contract 1 to 2 per cent (point estimate –1.4 per cent), a marked swing from the +2.2 per cent growth expected before the storm.

The institute does not anticipate a return to year-on-year growth until the October–December 2026 quarter, though “as the recovery gains momentum, each subsequent quarter is anticipated to show progressively smaller rates of contractions,” the chief planner said.

Potential upsides include a faster-than-expected rebound in agriculture and tourism and an acceleration of reconstruction that could lift construction activity.

For calendar 2025, real value added was flat: gains in January–September (+2.6 per cent) were wiped out by the fourth-quarter collapse.

Goods-producing industries managed +1.5 per cent for the year, led by agriculture (+4.4 per cent) and construction (+one per cent), while services fell 0.5 per cent.

Labour-market data for October show an unemployment rate of 3.3% (down 0.2 percentage point), though the employed labour force dipped by 3,800 and more Jamaicans exited the labour force.

The PIOJ’s recovery blueprint emphasizes “build forward better”—rehabilitation, resilient reconstruction, and long-term risk reduction—to address chronic vulnerabilities exposed by Melissa.

The institute’s near-term forecast remains cautious: expect continued contraction in January–March 2026, gradual easing of declines through mid-year, and a turn to year-on-year growth by the December 2026 quarter—provided energy shocks are contained and reconstruction gains traction.

For now, the warning lights are flashing.

The fourth-quarter slump was broad-based across farms, factories, mines, construction sites, hotels and transport hubs.

The coming months will test the speed of repairs, the resilience of firms and households, and the state’s capacity to target recovery spending.

If Melissa’s lessons are heeded—and if tourism and agriculture rebound alongside reconstruction—Jamaica could skirt a formal recession and set the stage for a steadier 2026, according to the PIOJ.

neville.graham@gleanerjm.com

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