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Fiscal Policy Panel updates economic assumptions

13 August 2021

Jersey's Fiscal Policy Panel (FPP) has published its updated forecast for the Jersey economy. This forecast has been issued for the Government to consider as Ministers prepare the Government Plan 2022-25.

 The panel's economic growth forecast has been revised upward. They are now expecting the economy to grow by 2.2% this year, with growth further accelerating to 2.8% in 2022 and 3.3% in 2023. However, this follows an expected fall of more than 9% in 2020. This would be the sharpest economic contraction on record.

The Panel's letter to the Minister for Treasury and Resources explains that the pace of vaccination means that there is 'cautious optimism' that Covid-19 related disruptions to the economy will begin to ease. The latest economic data suggests a faster than expected recovery, with unemployment continuing to fall and business sentiment improving.

However, a large element of the contraction in gross value added (GVA - a measure of economic activity) is due to the impact of low interest rates on the profitability of Jersey's banking sector. As interest rates are expected to grow very gradually, this means that Jersey's economic output is not expected to return to pre-pandemic levels in the near future.

Minister for Treasury and Resources, Deputy Susie Pinel, said: "We welcome this letter from the Panel and officers are now considering its contents. The FPP perform a valuable role by being an independent expert voice, and Ministers appreciate their insight when developing the details of the Government Plan."

The Panel has also updated its inflation forecast and expects a temporary period of high inflation to gradually fall back over the course of 2022. High inflation is common to a number of industrialised economies at the moment, including the UK.

The Panel's letter also advises that Government should aim for public finances to be broadly in balance by 2024, and that no new fiscal stimulus should now be introduced.

However, they recommend retaining flexibility to respond if economic conditions change.

The letter can be found here.

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