Jersey’s Fiscal Policy Panel updates economic forecast
Jersey’s Fiscal Policy Panel (FPP) has published an updated forecast for Jersey’s economy. The forecast is for a steep contraction in the economy this year, in common with many other jurisdictions, following severe disruption to the global economy caused by the coronavirus pandemic.
This forecast, which updates the previous one from March, is for a slightly sharper contraction this year, due to the weaker outlook for profits in the banking sector following the cut in interest rates. The FPP forecast is a key input into the Government of Jersey’s forecast for public finances, in particular the income forecasts that underpin the Government Plan.
The Panel’s forecast is summarised as follows:
- Gross value added (GVA – a measure of economic output) to fall by 7.5% this year followed by a gradual and partial recovery.
- A fall in employment, particularly in sectors such as hospitality and retail that were most affected by restrictions during the ‘stay-at-home order’
- A sharp fall in profits in both the banking sector and in the sectors most affected by stay-at-home (hospitality and retail)
- Inflation to increase from current very low levels, but remain subdued this year and next.
The FPP acknowledges that Jersey has successfully controlled the spread of the virus and has been quick to implement measures to support the economy. This support has played an important role in keeping money in businesses and households, and thereby reduced the long-term damage to the economy. However, the FPP expect that the economy will be smaller in the long run as a result of the potential damage caused by the pandemic.
As a result of this, the Panel anticipates that public finances will be in deficit this year and that the pandemic is likely to lead to a permanent imbalance of revenues and spending – i.e. a structural deficit. The Panel does not recommend quick introduction of large cuts in expenditure or of new revenue streams, as they say this could jeopardise the economic recovery. The Panel recommends that the Government aims to close the deficit by 2024, while maintaining flexibility to revise the pace in response to economic conditions.
The Minister for Treasury and Resources, Deputy Susie Pinel, said: “The coronavirus pandemic has presented a huge challenge to our economy this year. The FPP’s updated forecast demonstrates that we are unlikely to see an immediate and complete recovery from the forecast recession.
“The Government has taken unprecedented steps to support the economy, including the Co-Funded Payroll Scheme (CFPS), deferrals of Social Security and GST payments, CRESS, and the Business Disruption Loan Guarantee Scheme. These schemes were vital in supporting the economy through the peak period of disruption and we now move into the next stage, where we support a robust economic recovery.
“The FPP’s forecast comes as we define spending plans for the next four years. The performance of the economy will inevitably have an impact on our public finances. However, we entered this crisis in a strong position with significant reserves and a strong balance sheet, as reaffirmed by Standard and Poor’s credit rating issued in July.
“In addition to the updated forecast, I asked the Panel to provide some summary fiscal advice to help with the difficult decisions ahead. I will review this advice with my ministerial colleagues and the Treasury team as we move forward with the Government Plan.”
The draft Government Plan is being developed and will be debated by the States Assembly in December.
The FPP’s letter is available online.
Government of Jersey News Release.