US embassy cable - 05KINGSTON1758

UNCLAS KINGSTON 001758 
 
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:  BUSINESS CONFIDENCE REMAINS STRONG 
 
1.  Buoyed by improved economic performance and favorable 
financial prospects for individual firms, Jamaican 
business confidence remained strong during April to June 
2005.  In fact, business confidence during the first two 
quarters of 2005 was higher than at any other time in the 
four-year history of the surveys.  While consumer 
confidence waned relative to the first quarter, it 
remained well above 2004 levels.  This according to the 
latest survey of business and consumer confidence 
conducted by Professor Richard Curtin of the University of 
Michigan on behalf of the Jamaica Conference Board. 
 
2.  Based on the survey released on July 5, business 
confidence remained strong during the second quarter of 
2005, with firms in all industries and of all sizes 
anticipating a surge in economic performance and improved 
financial prospects for their firms.  This is not 
surprising given that 33 percent of businesses reported 
greater than expected profits in the June quarter, the 
highest proportion of firms since the inception of the 
survey.  In addition, over 40 percent of all businesses 
thought it was a good time to expand output due to 
declining interest rates and the memorandum of 
understanding between the GOJ and trade unions. 
 
3.  Almost 66 percent of all firms expected a faster or 
unchanged pace of economic growth during upcoming periods, 
the fifth consecutive quarter of optimistic outlook for 
the economy.  This bullish mood was underpinned by reduced 
interest rates, stability in the foreign exchange market 
and increased foreign direct investment.  Similarly, over 
62 percent of Jamaican firms expected their financial 
performance to improve during the year ahead.  Business 
survey responders were quick to point out that increasing 
oil prices and the persistence of crime were the two major 
barriers to faster economic growth.  In fact, firms 
pointed out that their capital expenditure would increase 
if the costs and uncertainty associated with crime and 
violence were removed.  Additionally, almost 85 percent of 
all firms surveyed expected inflation to increase in the 
year ahead. 
 
4.  According to the survey, consumer confidence in the 
June quarter declined relative to the first quarter of 
2005, but remained above 2004 levels.  However, nearly all 
the second quarter loss in confidence occurred in Kingston 
due largely to crime, high taxes, increased inflation and 
unemployment.  While consumers had a favorable view of the 
current state of the economy, they were less upbeat about 
future economic prospects.  Consumers like businesses were 
quick to point to the adverse impact of rising prices and 
higher taxes as well as persistent crime.  Jamaicans also 
continued to hold a negative view of employment 
opportunities, with 85 percent of those surveyed citing 
the lack of job opportunities.  When asked about the 
future prospects, consumers voiced the most pessimistic 
view in two years.  Over 33 per cent of Jamaicans surveyed 
expected to receive remittances, with over half reporting 
an increase in the amount received during the past three 
years.  Consumers expressed less favorable purchase plans 
than in previous surveys, despite the expectation of 
higher remittances and increased income to cushion the 
inflationary impact. 
 
TIGHE