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Businesses more optimistic than consumers ahead of IMF agreement

Published:Wednesday | April 24, 2013 | 12:00 AM
The Q1 Business and Consumer Confidence indices were released on Tuesday. Seen here from left are president of the Jamaica Chamber of Commerce, Francis Kennedy, managing director of Market Research Services, Don Anderson, and chairman of the Jamaica Conference Board, Lloyd Distant. - Rudolph Brown/Photographer

There was a slight uptick in business confidence in the first quarter of calendar year 2013, but consumers remain unenthusiastic about the economic expectations in the year ahead, with the index recording the largest falloff ever.

The index of business confidence increased to 95 in the first quarter of the year, a marginal improvement over the 92.3 recorded in the last quarter of 2012, but well below the 123.7 at the start of 2012.

Consumer confidence however, declined from 120.7 in the fourth quarter of 2012 to 99.9 in the first quarter of 2013, according to the results of a survey released by the Jamaica Conference Board yesterday.

The year-over-year decline of 38 per cent was the largest falloff ever recorded, according to the survey report.

Managing director of Market Research Services, Don Anderson, explained that the continued uncertainty about an agreement with the International Monetary Fund (IMF) placed businesses in a precarious position because in the existing economic climate, they were not prepared to invest.

"They believe that things are beginning to change," said Anderson as he presented the findings of the first-quarter 2013 survey done on behalf of the Conference Board - the research arm of the Jamaica Chamber of Commerce - at the NCB Wellness Centre in New Kingston. NCB is the primary sponsor of the indices this year.

"They are not quite sure what are going to be the parameters of the IMF agreement," said Anderson. "There is a little bit of movement positively as far as business confidence is concerned, but it is still way below any of the high peaks that were evident in previous years."

Businesses' assessment of current economic conditions was the lowest since the start of 2009, according to the survey report.

While firms' optimism about future economic conditions was 6.1 per cent higher in the first quarter survey than in the last quarter of 2012, it was nonetheless 24 per cent lower than the first quarter of 2012.

Just nine per cent of businesses in the first quarter reported that the return on their investments was better than they initially expected, while 45 per cent said it was worse.

"These dismal profits will curtail firms' willingness and ability to make investments in 2013," the report said.

Worse economic conditions were expected by 41 per cent of all businesses, down from 50 per cent in the last quarter of 2012.

Just 47 per cent of businesses expected their balance sheets to improve in the year ahead, up from 40 per cent in the quarter before, but still below the 63 per cent recorded in the first quarter of 2012.

Rising profits were expected by 46 per cent of firms, up from 41 per cent the previous quarter, while worsening profits were anticipated by 28 per cent of businesses, up from 25 per cent at the end of 2012.

Bad time to expand

Among all firms, 60 per cent thought it was a bad time to invest in expansion of their businesses, more negative than at any time since late 2008 and early 2009, the report said.

"Once firms become aware of how new fiscal and monetary policies will be implemented, they appear ready to quickly adjust their investments in plant and equipment to more fully take advantage of any potential economic expansion," it said.

The decline in consumer confidence was widespread across all components, as well as among all regions, the report said.

Consumer respondents to the survey complained about the impact of government economic policies on their financial situation, the falling value of the Jamaican dollar and meagre income increases.

While consumer confidence did not fall to its lowest level during the past 10 years, the report said, it is at the lowest end of the range it has travelled during the past decade.

The authors warned that "unless there is some improvement in jobs and income prospects, consumer spending will contract in the months ahead".

Just five per cent of consumers thought the economy had improved, the worst assessment during the past decade, and only 19 per cent expect it to improve during the year ahead, said the report.

On the other hand, 47 per cent of consumers expect the economy to worsen, based largely on the Government's economic policies.

Consumers continued to be pessimistic about jobs, with 90 per cent reporting that employment was hard to come by and 56 per cent expecting the situation to worsen in the year ahead.

Rising prices were anticipated by 92 per cent of consumers, the third highest proportion ever recorded, said the report.

Purchasing plans remained at relatively low levels, with 14 per cent of consumers expressing their intention to buy vehicles, up from 12 per cent the previous quarter, but below the 21 per cent recorded a year ago.

Only nine per cent of consumers had plans to buy houses, unchanged from last quarter, but below the 15 per cent recorded in the first quarter last year, while 28 per cent expressed their intention for vacations, a one percentage point increase on the 27 per cent recorded last quarter, but below the 37 per cent recorded a year ago.

Fieldwork for the survey was conducted between January 15 and March 21. The survey sample covers 600 persons from across the island and 100 firms across all industry types.