JAMAICAN ECONOMY - FIRST QUARTER 2005 - CONFIDENCE

UNCLAS KINGSTON 001137

SIPDIS

STATE FOR WHA/CAR (BENT),EB/TRD (MATTINGLEY)

E.O. 12958: N/A
TAGS: ECON JM
SUBJECT: JAMAICAN ECONOMY - FIRST QUARTER 2005 - CONFIDENCE
IS HIGH



1. The Jamaica Chamber of Commerce, in conjunction with USAID
and the Survey Research Center at the University of Michigan,
has been conducting surveys of both business and consumer
confidence levels in Jamaica since 2001. Professor Richard
Curtin of the University of Michigan announced his findings
for the First Quarter of 2005 on April 5. His primary
finding was that business confidence was at the highest
recorded level in the history of the survey, and that
consumer confidence, while down slightly from the Fourth
Quarter of 2004, was still much higher than the First Quarter
of 2004. Though Curtin cautioned that the study could not
account for unforeseen economic shocks, such as spiraling gas
prices, labor troubles, inflation, or interest rate
increases, he concluded that both businesses and consumers
expect Jamaica's economic recovery to continue through 2005.


2. Curtin reported that the surge in business confidence is
broad based, with 28 percent reporting greater than expected
profits and 65 percent planning to invest in expansion in the
coming year. Based on the announcement of new investments in
tourism and mining, the expectation of a stabilization in the
Jamaican dollar, as well as the completion of a new
Memorandum of Understanding between the GOJ and leading labor
unions, 35 percent of businesses expect better economic
conditions in the year ahead. Of those businesses
maintaining negative outlooks, nine in ten firms identified
crime as the number one problem restricting growth.


3. Curtin stated that there had been a small pullback in
consumer confidence, due to conflicting signals in current
economic conditions. Consumers in Kingston and those
involved in the tourism industry have maintained high
confidence levels, but consumers outside of Kingston in other
industries have lost confidence. Curtin identified
unemployment as the primary cause of the confidence loss,
stating that Jamaica's economic recovery to this point had
largely been jobless - increasing income in exchange for
increased productivity without creating many new employment
opportunities. Curtin stated that the cause of this
unemployment problem was a lack of skills and training among
the unemployed, leaving them capable of competing for only
menial, unskilled employment, while jobs requiring
professional skills go unfilled. As a result of high
unemployment, 45 percent of the consumers surveyed expected
the economy to worsen, up from 39 percent in the Fourth
Quarter of 2004. This uncertainty has caused consumers to be
cautious in developing their spending plans, even though they
tentatively expect higher income levels.


4. Comment. The responses from businesses indicate that the
country's economic structure and investment climate are, if
not perfect, at least better than at any time since the
surveys began in 2001, and Jamaican entrepreneurs appear to
have confidence in the moves their government has made to
attract investment and head off industrial actions by labor.
The consumer figures, however, appear to indicate a
developing problem in demographics. Those Jamaicans with
skills in high demand are emigrating to the UK, Canada and
the U.S. in large numbers, and supporting their families with
remittances. This increases the percentage of the unskilled
and unemployable remaining in the country. In the immediate
sense, this is a problem for consumer confidence, since the
island's unemployed, with no marketable skills, often see no
chance of ever getting a job. In the long term, however, the
limited size of the skilled labor pool in Jamaica may
seriously limit the ability of the business sector to grow.
End Comment.
TIGHE