FIGURES RELEASED earlier this week revealed what many had suspected, that US economic growth has slowed sharply. In response, the Federal Reserve Board cut interest rates in hopes of providing sufficient stimulus to prevent the economy sliding into recession.
It will be some time before we know how effective the Fed's policy will be. However, there are sufficient grounds to begin preparing for the worst. High levels of debt, falling asset values and a weakened social safety net may lead American consumers to suddenly behave quite conservatively, as have Japanese consumers throughout the last decade. This could well create a vicious deflationary spiral.
Nowhere is the need to prepare for the worst more pressing than here. The effects of an American recession on the Jamaican economy will take some time to manifest themselves. But rising unemployment will affect the flow of remittances, and may even lead to a return of some Jamaicans, which would raise our own unemployment rate.
Tourism is likely to feel some negative effect, as will demand for primary commodity exports. All things considered, if the US sneezes, we will likely do more than catch a cold. And if the US catches a cold...
Much economic forecasting in Jamaica has been premised on expectations of a solid US economy. With that assumption now in doubt, our political and corporate leaders should move quickly to adjust to what may be the emerging new reality in the world economy: a possible US recession, accompanied by a global slowdown.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner.
