• Prior to the Covid-19 pandemic, Fitch Solutions expected the Grenadian government would regularly run budget surpluses and remain committed to its Fiscal Responsibility Law (FRL), which has been in place since 2015 and targets bringing public debt below 55.0% of GDP.
• However, the agency now expects a fiscal deficit of 2.4% of GDP in 2020, from a 4.1% surplus in 2019, as restrictions on domestic commerce and government stimulus measures cause the first budget shortfall in five years.
• Grenada’s historic recession, which is forecasted at 13.7% y-o-y in 2020, will significantly undermine government receipts from tourism and other service sectors.
• While high-frequency data are not available to highlight the diminished activity, Prime Minister Keith Mitchell’s government enacted a strict stay-at-home order from March to May and closed the international airport to international flights from March until August.

(Source: Fitch Solutions)

• The Dominican government’s response to Covid-19 will push the fiscal deficit to a historic high of 6.5% of GDP in 2020. Fitch expects the Covid-19 shock will derail the country’s robust economic growth trajectory of the last decade, causing a 4.7% contraction in 2020 and significantly undermining short-term public revenues.
• Moreover, the Dominican government has implemented countercyclical fiscal stimulus measures to support recently unemployed and low-income workers, which will push expenditures higher.
• As Covid-19 cases in the Dominican Republic remain elevated, it is expected that the government will increase spending on health care operations and transfer payments into 2021.
• The budget shortfall is projected to narrow slightly, to 5.8% of GDP in 2021, but remain well above the five-year average deficit of 1.6% over the coming years.

(Source: Fitch Solutions)

• The Federal Reserve on Thursday rolled out a sweeping rewrite of its approach to its dual role of achieving maximum employment and stable prices, putting new weight on bolstering the U.S. labor market and less on worries about too-high inflation.
• The Fed’s new monetary policy strategy pledges to address “shortfalls” from the “broad-based and inclusive goal” of full employment, a nod to research showing racial income disparities hold back economic growth.
• It also promises to aim for 2% inflation on average, so that periods of too-low inflation would likely be followed by an effort to lift inflation “moderately above 2% for some time.”
• The change suggests the U.S. central bank’s key overnight interest rate, already near zero, will stay there for potentially years to come as policymakers woo higher inflation.

(Source: Reuters)

• The rebound in U.S. consumer spending moderated in July amid a surge in virus cases, with outlays at risk of further softening after cuts in supplemental relief payments for jobless Americans.
• Household outlays rose 1.9% from the prior month following an upwardly revised 6.2% rise in the prior month, a Commerce Department report showed Friday. That compared with economists’ estimates for a 1.6% gain. Personal incomes rose 0.4%, topping expectations for a slight decline.
• The deceleration in spending -- which accounts for about two-thirds of the economy -- marks a tempering in the economic recovery following two months of stronger gains.
• While spending has increased in recent months, total outlays remain below pre-pandemic levels. Spending could take a further hit in August after the expiration of the extra $600 in weekly jobless benefits at the end of July, which had propped up incomes and consumption.

(Source: Bloomberg)

• With the number of COVID-19 cases rising in the country and five persons dying from the disease in the last four days, President Irfaan Ali announced several measures his Government is taking to tackle the pandemic which includes the sourcing of some US$60Mn to assist in its efforts.
• The funds will be sourced from the World Bank, the Inter-American Development Bank, and the Islamic Development Bank. Another US$2Mn has also been sourced from the Government of India.
• The President also announced that the Bank of Guyana has extended to December 2020, the moratorium to allow commercial banks to further defer customer payments. There will also be a reduction in the liquidity requirement and the lowering of the reserve requirement from 12% to 10%.
• The Head of State noted that the impact of the total shutdown on the country’s economy continues to be severe, with a 4% decline in the economy, and almost 70%contraction of business, and a reduction of operational output as a result of rotation in work so far.

(Source: Stabroek News)

• Fitch Solutions has revised its forecast for Panama’s current account deficit to 9.0% of GDP in 2020 and 6.1% in 2021, up from 5.9% and 5.5% respectively, as a sharp reduction in tourism weighs on Panama’s service trade balance.
• Panama’s goods trade deficit will contract modestly in 2020 amid lower consumer incomes and trade volumes, though it is expected that the deficit will expand in 2021 as economic activity normalizes.
• Robust investor demand for Panamanian assets and a business-friendly economic environment will support Panama’s external account stability despite the wider current account shortfalls.

(Source: Fitch Solutions)

• Several Federal Reserve policymakers say the U.S. central bank may need to ease monetary policy further to help nurse the economy through the coronavirus pandemic, minutes from their policy meeting last month showed on Wednesday.
• The Fed has already slashed interest rates to zero and bought trillions of dollars of bonds in response to the economic crisis spurred by the coronavirus, moves that have provided a boost to jobs and spending.
• However, according to the readout of the July 28-29 policy meeting, members of the rate-setting Federal Open Market Committee saw the rebound in employment already slowing and additional “substantial improvement” hinging on a “broad and sustained” reopening of business activity.

 (Source: Reuters)

• Global trade is starting to crawl back after collapsing to a record low in June, the World Trade Organization said, but the outlook remains too murky to conclude whether a sharp rebound will be happening or the recovery will muddle along for months.
• The Geneva-based organization’s latest Goods Trade Barometer fell to 84.5 in June, compared with a level of 87.6 in May and 95.5 in February. Readings of 100 indicate growth over the next quarter in line with medium-term trends, while those higher or lower than 100 points to growth above or below the recent trend.
• The WTO previously projected that trade flows could fall by as much as 30% and potentially exceed the losses seen during the Great Depression. The latest report said that scenario now seems less likely as trade flows remain on-trend for an 18.5% decline in the second quarter of 2020.

 (Source: Bloomberg)

• General Accident Insurance Company Jamaica Limited reported a 4.0% (or $5.47Mn) decline in net profit attributable to shareholders to $129.91Mn (EPS: 11¢) in for the six months ended June 30, 2020.  
• Despite a 37.1% ($366.37Mn) increase in net premiums earned, the unfavorable outturn was largely due to a material rise in expenses, including a 40.2% (or $254.47Mn) increase in claims expense and a 36.1% (or $151.41Mn) rise in management expenses.
• Management noted that GENAC has been impacted by COVID-19 and that the full impact of the virus on the business remains uncertain.
• The stock has fallen by 8.7% since the start of the year, closing Tuesday’s trading session at $6.48. At this price, the stock currently trades at a P/E of 12.5x earnings, which is below the Junior Market Financial Sector Average of 36.6x.

(Source: GENAC Financials)

• Inflationary pressures in Venezuela will increase over the coming months, driven by recurring gasoline shortages and wider public deficits.
• As a result, Fitch Solutions expects that the Bolívar Soberano (VES) will continue to depreciate in 2020 while inflation remains near the hyperinflationary territory. It forecasts the bolívar will average VES340,065.9/USD in 2020, while inflation will average 2,473.2% y-o-y.
• It also maintains its view that the current Venezuelan government, led by President Nicolás Maduro, lacks the tools to address the core drivers of inflation and currency depreciation, suggesting the situation is unlikely to change moving forward.

(Source: Fitch Solutions)