Business confidence slips

Business confidence slips

Business confidence slips due to FX fluctuatons and crime Consumer confidence remains stable

BY ABBION ROBINSON
Observer business reporter
robinsona@jamaicaobserver.com

Wednesday, January 22, 2020

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The devaluation and fluctuation of the Jamaican dollar, alongside the untamed crime monster, remain the factors that have influenced business confidence and its downward trend, according to pollster Don Anderson.

“Over the last two periods — the second and third quarter of 2019 — business confidence slipped, causing a buzz within the business community, and the fourth quarter reveals that there has been a further slip, so that is an apparent decline, and we can now speak definitively about a decline,” Anderson reasoned in presenting the findings of the Jamaica Chamber of Commerce (JCC) business and consumer confidence indices for the fourth quarter of 2019 at Spanish Court Hotel in New Kingston yesterday.

“Businesses have been echoing cries over the last two quarters about two main factors — the devaluation or significant fluctuation of the Jamaican dollar, and the high level of crime and violence within society. We look around and we can see significant business activities characterised by numerous housing and business developments, apparent expansion in the business process outsourcing sector and the tourism sector, and one might be inclined or tempted to say that this fall-off in business confidence is counter-intuitive,” Anderson continued.

According to the noted pollster, businesses are not only lamenting the high foreign exchange rate but also its consistent fluctuation, which makes it difficult to plan long term. He added that crime only exacerbates the concerns.

The business confidence index fell to 131 points in the quarter under review from the 141 points recorded in the previous quarter. This 10-point fall-off in business confidence, according to Anderson, has dragged the overall indices down.

All seven variables used to measure business confidence decreased. Businesses' assessment of the current economic conditions is down by 21 points, expectations to the current economic conditions are down by six points, expected change in the economy is down by seven points, expected change in the firm's finances is down by nine points, current return on investments is down by 23 points, expected change in profitability is down by seven points, and current investment and expansion interests is down by seven points.

This pattern of decline is evident first in the second quarter of 2019; however, Anderson maintained that it has to be contextualised against the fact that over the last eight to nine periods, business confidence, though currently on a decline, has in fact accumulated better than the previous 11 years.

“From 2015 to now the indices have been at a pretty strong level compared to previous years, but the decline has to be noted because it's a pattern which has set in over three periods now and needs to be looked at,” he said.

Despite these findings, it should be noted that majority (57 per cent) of the 100 firms interviewed indicated that they still feel it is a good time to invest. However, this representation is down from the 64 per cent in quarter three of 2019.

Retail and wholesale, as well as construction, are noted as the top sectors that firms are likely to invest in.

Marlene Street-Forrest, managing director of the Jamaica Stock Exchange, added that, despite the JCC's findings, companies remain confident enough to join the market.

“When we look at what has happened in the stock exchange in 2019, what we have seen is that we have consistently had new listings. In 2019 we have 18 securities listed on the exchange raising $18.9 billion, which is bigger than the year before, and the year before that. So we are not seeing clearly the dip in business confidence,” she stated.

Meanwhile, the consumer confidence index remains stable at approximately 180 points.

According to the survey, consumers' perception of current business conditions, jobs, as well as their expectations for income, are driving this stability.

However, Anderson alluded to the correlation between consumer confidence and elections. He indicated that in the period between 2001 and 2012, consumer confidence peaked in 2002, 2007 and 2011, which were election years.

“As expectations rose with the onset of an election, consumer confidence grew. Six months after the election was over, consumer confidence fell off precipitously. So we had those three peaks because election promises were made and to some extent those promises were not kept,” he explained.

He further added that the confidence from consumers are influenced by official data that speaks to a reduction in unemployment, and that more family members are finding employment — however short term — in the construction, tourism, and business process outsourcing sectors.

Consumers in the rural areas continue to be the least optimistic with 169.8 points, while those in the tourist areas continue to report greatest optimism at 188.6 points.

Expectations for income gains were stable and anticipated by 55 per cent in the fourth quarter of 2019. This resulted in an index of 147 points and no meaningful change over the third-quarter index of 146 points.

The majority of consumers do not anticipate purchasing either a home or a car but a significant 47 per cent anticipate taking a vacation in the year ahead.

Conducted by Market Research Services, the aim of JCC's quarterly survey is to provide businesses with the knowledge and information needed to make better business decisions. The index is derived from quarterly surveys of CEOs and senior officers of approximately 100 Jamaican firms, and 600 households islandwide on business and consumer opinions related to current conditions and future expectations of the economy.


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