Dennise Williams, Staff reporter
BUSINESSES SEE trouble on the horizon and are taking plans to protect themselves, while consumers' high expectations are not likely to be met and will likely create resentment for price increases and a decline in living standards.
This is the grim assessment of the economy going forward based on survey results for the third quarter 2005 Business and Consumer Confidence Indices released yesterday at the Terra Nova Hotel.
The presenter, Professor Richard Curtin, expects that the slow-down in the United States economy will have a detrimental impact on the Jamaican economy as Americans cut back on their travel budgets and as remittances sent back to Jamaica are affected.
In the face of rising inflation, due to many factors including natural disasters and rising oil prices, U.S income growth is expected to decline from 3.8 per cent to 2.1 per cent, he said. Consumer refinancing of houses supported spending in the past and this has caused personal levels of debt to escalate while their personal savings are non-existent, so consumers will have no choice but to cut back.
"I don't see how remittances and travel to Jamaica (will) increase," he said. It is hard to determine how much decrease there might be because the change in the U.S economy has happened so quickly.
That said, Professor Curtin demonstrated that Jamaican businesses are mentally preparing for the worst.
Business confidence has plunged to its lowest levels in the past four years. The decline has been substantial and more than had been anticipated.
The plunge in confidence is attributable many factors. The main influence is crime and violence, followed by inflation, rising fuel costs, insufficient local and export demand for goods and insufficient government economic policy.
"Firms are sending a clear signal: trouble is on the horizon."
Consumers have a more positive view on the economy that Professor Curtin believes is too optimistic. "With 35 per cent of Jamaican households receiving remittances, they are able to continue to have positive spending plans despite having negative views on future job prospects."
However, consumers may have become too positive during the summer months, he said. "The psychological reaction to the reality of the economy will most likely be disappointment and hurt."
In fact, Professor Curtin believes that for businesses and consumers, the next quarter will be tougher. "Looking forward, the 4th quarter could be very poor. It is not a good time for domestic expansion and so firms are poised to cut back."
Still, there is a ray of hope. Professor Curtin told the audience that, "confidence is a psychological thing and should crime be controlled, then confidence will soar. Crime and violence is the number one problem that is identified by both businesses and consumers. Additionally, I believe that the price of oil will come down in 2006 and go back to US$50 per barrel and this will take pressure off consumers."
SURVEY RESULTS
Businesses
-13% of businesses thought that the Jamaican economy improved
-66% of businesses expected that the economy would worsen
-33% of firms reported that profits were worst than had originally anticipated
-51% expected improved profitability in the year ahead
-34% thought it was a good time to invest
-43% reported that finances of their firms had improved
Consumers
-60% rated current economic conditions as average
-67% said jobs were harder to find
-93% expects higher inflation during the year
-18% expressed more favourable spending plans for vehicles
-13% expressed intentions to buy a home
-25% expressed vacation plans
