In a series of articles in 2007 for another newspaper, culminating in an August piece entitled ‘Major financial hurricanes are approaching, both overseas and locally’, I argued that a major global financial crisis was on its way and hinted at the future collapse of the local Ponzi schemes.

The previous year, in 2006, I argued that economist Nouriel Roubini (Dr Doom) — now famous for calling the global financial crisis — was right, but a year early in his recession call. The US recession actually began in January 2008, according to the National Bureau of Economic Research.

The article noted that, “International stock markets have fallen in response to spreading nervousness, with the US stock market benchmark the Dow Jones Industrial Average now down around 10% from its July high,” and observed that the Federal Reserve (Fed) had just made a rare intra-meeting cut of the discount rate on Friday by half a per cent because “financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward”.

At the Fed meeting today, however, nearly 18 years later, despite the market correction of 10 per cent from its recent high last week Thursday, no one is expecting it to cut interest rates. Most still seem to believe the sharply negative Atlanta GDPNow figure for the first quarter is just a growth scare in a still relatively strong US economy. However, like in 2006, there were already a few signs of economic deterioration, even towards the end of 2024 if one looked closely, including a slowing labour market and an overvalued (and over concentrated) stock market. The US economy was certainly not as strong as it seemed, with arguably excessive stimulation from the “sugar high” of a roughly 7 per cent fiscal deficit. In any case, the so-called soft data in the US, for example the University of Michigan consumer confidence indices, are now turning down.

In a Monday report, Deutsche Bank advised that from 1928 to date there have been 60 stock market corrections, including this current one. Its research states that once a correction occurred, 12 per cent of the time a recession had already started, 32 per cent of the time one was coming within the next 12 months, and on 56 per cent of occasions no recession started around or within a year of the correction. In short, a correction is 44 per cent of the time associated with a recession and 56 per cent not. This is actually unsurprising as recessions are normally associated with much deeper stock market corrections. However, while investors in the US are still buying the dips, the smart money is now starting to wake up to the prospect of a real trade war and the associated negative impact on asset prices.

Good news budget

In her presentation, new Finance Minister Fayval Williams showed her steadfast commitment to maintaining a balanced budget in an election year.

She announced a number of new business-friendly “good news” growth measures, perhaps the most significant being accelerated capital allowances (increased tax depreciation) for investments in buildings and plant and machinery as long as the investment occurs in 2025 and 2026 — very timely in view of the current global economic uncertainty.

The most important long-term measure could be the reduction in the rate of withholding tax applied to dividends paid to non-residents, as long as it is merely the first down payment on reforming Jamaica’s dividend taxation regime. The minimal cost shows the critical importance of her wider ‘Bring Back Business Income’ initiative to encourage Jamaican businesses to “bring home” their offshore activities (there are rumoured to be 4,000 Jamaican companies in one Caribbean jurisdiction alone).

For this strategy to really work in the current challenging global environment, however, it should be complemented by a ‘Bring Back Jamaican Brains’ initiative targeting Jamaican professionals through, amongst other measures, eliminating the “temporary” additional higher rate of income tax.

A further entrepreneurial multiplier effect can be generated through overseas Jamaicans if the drive to create a Micro-Stock Exchange for companies that wish to raise $10 million-$50 million in equity capital on the stock market is complemented by the regulations for local partnership structures being finalised to encourage our own “private” venture capital market as exists in the US.

Making the 2014 Pioneer and Large-Scale Projects Tax Incentive Act finally fit for purpose to allow both harmonisation and other US$1-billion projects is a potentially very powerful initiative but needs to be complemented by much more aggressive support for our development bank in driving new innovative industries (see also my 2006 online paper ‘A new approach to development banking in Jamaica’). The latter paper, however, needs an update.

Finally, the country with the world’s fastest man should use the long-awaited proposed move towards performance-based pay in the public sector to make it an absolute priority for us to become the easiest country to do business, using Singapore as a model, where the public sector is not only efficient but prods the private sector to be more productive.

The need for a new Jamaican growth strategy for a new global order

In a recent project syndicate article, ‘Towards a North American economic union’, Professor Roubini noted he was a senior advisor for Hudson Bay Capital, the same hedge fund for which the now chairman of the US Government’s council of economic advisers, Dr Stephen Miran, previously worked.

Miran wrote a paper in November 2024 entitled ‘A User’s Guide to Restructuring the Global Trading System’, essentially a plan for a radical restructuring of the global financial and trading system. Miran outlined what he describes as a “narrow path” to shift global manufacturing capacity back to the United States, which appears to reflect the current strategy. This suggests that for the rest of this year, at least, and perhaps much longer, we will see accelerated economic and financial turbulence. As a consequence, much more radical pro-growth measures are now required in Jamaica to offset the looming global shocks, best achieved by developing a true social partnership for growth, starting with the current national budget.

Keith Collister