Confidence fizzles as economy weakens

Business and consumer confidence had record declines in the second quarter survey, reflecting a weakened outlook for jobs, and financial and economic prospects.

Optimism sank on weaker outlook on change in the economy and expectations of a dip in profit, said Lloyd Distant, chairman of the Jamaica Conference Board in his overview of the survey results. Distant said investment plans remained cautious and there was a significant reversal in consumer confidence relative to the first quarter.

"It's not an enormous surprise and represents mostly a reversal of expectations, a normalisation, going back to pre-elections levels," explained Keith Collister, Jamaica Chamber of Commerce director and chairman of its economic and taxation committee.

The Business Confidence Index fell to 91.8 points in the second quarter, down from 117.5 for the same period last year and from 123.7 for the first quarter of 2012.

Despite the drop, however, Distant said the index remained above recession levels of 75.8 points recorded in early 2009.

The biggest dip in confidence was not in current business conditions but rather firm expectations.

The business expectation climate showed a sharp year-on-year decline from 117.4 to 86.2 while for current conditions it slowed from 124.9 to 106.

Businesses identified the top problems facing the country as unemployment, high taxes, cost of crime and inadequate government policies and programmes.

Added to the domestic challenges, the slow-down in the United States and Europe have also contributed to the a diminished outlook for revenue and profit.

"Any further deterioration could turn the current expectations of near-zero GDP growth into more substantial decline during the year ahead," the survey report stated.

In the meantime, consumer confidence and prospects for employments that was boosted by the JEEP jobs programme under the last survey was erased this quarter.

The Consumer Index recorded its largest quarterly decline by 49.1 points to 111 relative to the first quarter, but was down 5.8 points relative to the comparative 2011 period.

"Most of the increase in pessimism was related to the outlook for the national economy and job prospects as well as changes in economic policies on disposable incomes.

Drag on economy

"The growth slowdown among Jamaica's major trading partners added to the reversal of domestic prospects and the slower expected growth in household incomes translated into reduced buying plans, representing an added negative drag on the Jamaican economy," said the confidence report

Both consumers and businesses expect the economy to be weaker in the periods ahead.

"The high hopes for the new government's policies have all vanished, with the prospects for the economy no better than before the elections," the report states.

Additionally, the proportion of firms expecting economic conditions to worsen jumped to 52 per cent from 17 per cent in the first quarter, while those expecting their balance sheets to improve fell from 54 per cent in Q1 to 41 per cent in Q2.

"Since profits represents a major source of funds to finance future expansion, drains on profits as well as prospects for an overall economic slowdown has made firms cautious about using their own reserve funds," the report said.

In a similar vein, consumer outlook on jobs, increased income and planned purchases all remained depressed, as well as consumer spending on cars, vacations and real estate which will decline in the year ahead as a result.

sabrina.gordon@gleanerjm.com