Jamaican companies pull back on investment plans

Published: Friday July 4, 2008

Jamaican firms have pulled back sharply from near-term investment plans in the face expectations of weak profits and a deepening pessimism about the state of the economy, the latest survey of business confidence shows.

The quarterly survey for the Conference Board, an arm of the Jamaica Chamber of Commerce (JCC), is overseen by Professor Richard Curtain of the University of Michigan, and the latest, for the second quarter, was released this week.

"Just 27 per cent (of firms) think that it is now a favourable time to invest in the expansion of their businesses, down from 36 per cent in last quarter and the peak of 48 per cent at the start of 2007," Curtin said in his analysis of the data.

"Firms have become less expansion-minded and more defensive," he said.

Confidence index down

In fact, the business confidence index, 103.1, was down 14.1 points from the first quarter and at its lowest point since the second quarter of 2006.

And the problem, explained Curtin, is largely that corporate leaders just don't see how, in the current environment, they can sustain the profitability of their firms and thus justify new investments.

"More than any other component of firms' outlook, how firms judged their future profit has shown greater instability, in part reflecting the outlook for the economy and government policies," he said.

In the previous quarter, for example, 61 per cent of all firms expected higher profits going forward. In the latest survey, that number decreased to 47 per cent, a drop of 14 percentage points.

Plans to hike prices

Curtain said that even though most businesses had plans to push up prices in a bid to cover higher costs, they did not believe they would be in a position to catch up, especially in an environment of weaker demand.

Indeed, the consumer confidence, as measured by the index of consumer confidence, slipped 15.7 points in the second quarter, to 126.7, its lowest level in the first quarter of 2006.

In the circumstances, consumers, like business people with their expansion plans, have pulled back on intentions for big-ticket purchases compared to the more favourable outlook when more people were looking forward to a great growth in jobs, and were more optimistic about increasing their earnings.

Said Curtin in the latest survey: "Home purchase plans snapped back from the usually low level at the start of 2008 to 10 per cent in the second quarter.

"Vehicle purchases were planned by 17 per cent, down from 23 per cent at the close of 2007. Vacation plans were held by 25 per cent, unchanged from the last quarter but below the 35 per cent set in 2007."

Even with the tentative attitude of consumers, however, Curtin felt spending plans remained strong enough to support some overall growth in the economy.


Source: Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20080704/business/business5.html