By Dennise Williams, Staff Reporter
Professor Richard Curtin. - Norman Grindley /Staff Photographer
CONFIDENCE IN Jamaica's growth prospects slipped in the first quarter of 2004, the latest indices of business and consumer confidence show.
Despite announcements of unprecedented investments in tourism and the bauxite and alumina sector, businesses and consumers expect Jamaica's economy to grow at a slower pace in the new financial year, which started last week. The results were released by Jamaica Conference Board (JCB) consultant Professor Richard Curtin at the Terra Nova Hotel, New Kingston yesterday.
SLOWER PACE
A slower pace of economic growth was anticipated by 63 per cent of all firms in the first quarter of 2004, up from 56 per cent in the prior quarter, the business confidence index showed. The index is produced by the JCB.
Among all firms, 24 per cent expected their profitability to decline while 17 per cent of firms expected their overall financial standing to worsen in the first quarter. Large firms reported much more favourable assessments than small firms in both their expected profitability and in the expected change in the firm's balance sheets.
BUSINESS OUTLOOK
Confidence slips.
Diminished profitability.
Slowdown in economic growth expected.
Investment climate improves.
Profits squeezed but overall finances steady.
"The data indicate significant differences among firms in how they viewed their current and expected profitability," said Professor Curtin, who heads the Survey Research Centre of the University of Michigan.
"Small and medium sized firms judged their profitability much less favourably while larger firms held a more positive profit outlook. The export advantage from last year's devaluation as well as the improved economies of Jamaica's major trading partners has aided larger export oriented firms."
Small to mid-sized firms, which depend on the local consumer, are in a tighter spot.
"The drain on consumers' disposable income from rising prices for bus fares, utilities, oil and other imported goods, has diminished prospects for smaller firms who primarily rely on domestic demand," Professor Curtin said.
The survey revealed that all firms expressed concerns about the ineffectiveness of Government economic policies and continued to complain about high interest rates.
"Despite the Bank of Jamaica's lowering of interest rates 10 times since 2003, businesses still complain about the high cost of lending," he said. "Even at an average of 20 per cent with inflation for 2003 running at 14 per cent, the real cost of lending is low. However, I believe that inflation has peaked and month to month (compared to year to date) inflation will decrease. This increases the cost of lending. However, internationally the cost of capital is high."
And so businesses reveal that they expect higher prices to offset the increased costs.
Professor Curtin also said, "the current rate of return on investments was reported to have met or exceeded the original expectations of 56 per cent of all Jamaican firms in the first quarter, although this number was 65 per cent in the previous fourth quarter of 2003."
He said more firms thought that it was a good time to invest in increases in their productive capacity.
IMPROVEMENT WAS MUTED
"The improvement was muted, however, by an increase in the number of firms that were uncertain as to the timing of their investments."
The survey revealed that a rising number of firms expected their profitability to diminish in the year ahead, but they did not anticipate the lessened profitability to have much impact on their overall financial position.
Consumers had a somewhat different perspective.
Residents in Kingston and the tourist areas reported a more positive outlook on the economy than residents in other areas in Jamaica.
Professor Curtin said, "Overall, the level of consumer confidence has now fully recovered from last year's low, although it still lingers at a level below the more favourable outlook recorded in 2002."
CONSUMER OUTLOOK
Consumer confidence remains the same.
Economic expansion slows.
Slower growth and fewer jobs.
Larger income gains expected.
Spending plans ease.
In the opinion of consumers, the number of available jobs improved slightly with most occurring outside Kingston and mainly in the tourist areas. However, nine in 10 consumers thought that jobs were scarce and hard to find in the first quarter of 2004.
In fact, two-thirds of all consumers expected the economy to produce fewer jobs in the year ahead. The survey also revealed that following the devaluation, increases in bus fares, utilities, and oil prices, nine in 10 consumers expected continued inflation in 2004.
The surveyors observed that incomes did not rise nor were expected to rise, but the standard of living is rising and expected to do so.
According to Professor Curtin, remittances bridge this gap.
Thirty-five per cent of participants received remittances with the recipients being households headed by females, the poor or younger persons.
"One gets the impression that remittances come on a regular basis in Jamaica," he said. "Therefore, remittances should be considered a part of people's standard of living and not adjunct to the economy."
REMITTANCE RECEIPTS
Of the 35 per cent of surveyed consumers who receive remittances, funds came to Jamaica on the following basis:
Every month - 24 per cent
2-3 months - 17 per cent
Less often - 18 per cent
When needed - 25 per cent
When funds available - 16 per cent
