US embassy cable - 05KINGSTON379

UNCLAS SECTION 01 OF 02 KINGSTON 000379 
 
SIPDIS 
 
STATE FOR WHA/CAR/ (WBENT), WHA/EPSC (JSLATTERY) 
 
SANTO DOMINGO FOR FCS AND FAS 
 
TREASURY FOR L LAMONICA 
 
E.O. 12958:  NA 
TAGS: ECON, EFIN, JM 
SUBJECT: Jamaican Consumers Optimistic About Economy 
(Corrected Version) 
 
1.  Summary:  Buoyed by expectations of a rebound in 
economic growth following Hurricane Ivan, consumer 
confidence surged from October to December 2004. 
Consumers are anticipating higher incomes and remittances, 
but still expect spending plans to stagnate.  Conversely, 
business confidence declined due to damage associated with 
Hurricane Ivan.  However, businesses are expecting 
increased investment and economic growth due to continued 
macroeconomic improvements.  There is also increasing 
optimism among international investors, particularly given 
the moderation in the country's fiscal deficit combined 
with the build-up in the stock of Net International 
Reserves.  Barring any unforeseen events, both consumer 
and business confidence are expected to increase 
throughout 2005.  Professor Richard Curtin of the 
University of Michigan conducted the Business and Consumer 
Confidence Survey on behalf of the Jamaica Conference 
Board. End Summary. 
 
2.  The index of consumer confidence rose by 15 percent to 
118.6 during October to December 2004, the highest level 
since the fourth quarter of 2002.  Gains in the index were 
underpinned by expectations of future economic growth, 
with consumers registering their most positive assessment 
of the economy in over two years.  Most importantly, a 
number of Jamaican consumers anticipate that a jump in job 
opportunities will create the best outlook for employment 
in two years.  Record performance in the tourism sector 
and an anticipated surge in foreign investment are some of 
the underlying factors explaining the buzz associated with 
job creation.  Expectations of higher income and increased 
remittances are also driving consumer confidence. 
However, consumers remain hesitant to increase spending, 
suggesting that they still consider the recovery to be 
fragile. 
 
3.  By contrast, the index of business confidence declined 
from 108.4 to 102 during the quarter.  The fall-off 
reflected damage and repair costs as well as lost sales 
associated with the passage of Hurricanes Ivan and 
Charlie.  In fact, firms reported that the costs incurred 
by the hurricanes had a devastating impact on its profits. 
However, most businesses surveyed expected the economy to 
improve on the back of new investments in the mining and 
tourism sectors, declining interest rates, stability in 
the exchange rate, lower inflation, and the creation of a 
memorandum of understanding between the GOJ and unions. 
Over 41 percent of the firms surveyed reported that it was 
a good time to expand business operations, the highest 
percentage in two years. 
 
4.  International investors have also been expressing 
optimism about the country's economic outlook due largely 
to: (1) sustained improvement in the economy, which should 
improve the country's ability to service its debt; (2) 
moderation in the fiscal deficit; and, (3) the jump in the 
stock of Net International Reserves (NIR).  This has 
influenced rating agency Standard and Poors to revise its 
outlook on the country from negative to stable.   European- 
based brokerage house Commerzbank Securities has also 
upgraded its outlook on the economy in its latest Emerging 
Market Update. 
 
5.  Comment:  Barring shocks, the confidence of Jamaican 
consumers is expected to increase throughout 2005.  This 
outlook is predicated on the anticipated surge in foreign 
investments and, by extension, job creation.  Remittances, 
which have become a significant source of disposable 
income, should also continue to increase in 2005. 
However, spending could continue to lag until consumers 
are satisfied that the current economic gains are 
permanent.  Business confidence actually continued to 
improve during the last month of the current survey.  This 
trend should continue throughout 2005, given the positive 
economic developments outlined by firms in the survey. 
Indeed, some of these gains have continued into 2005, with 
inflation subsiding in January and the Bank of Jamaica in 
February cutting interest rates for the twelfth time in a 
year.  Stability has also continued in the foreign 
exchange market due to increased foreign exchange inflows, 
resulting in a further build-up in the stock of NIR.  End 
Comment. 
 
TIGHE