VZCZCXRO9775
RR RUEHGR
DE RUEHKG #0771/01 1101843
ZNR UUUUU ZZH
R 201843Z APR 06 ZDK
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 2662
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHSJ/AMEMBASSY SAN JOSE 1820
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 KINGSTON 000771 
 
SIPDIS 
 
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 BUSINESS AND CONSUMER CONFIDENCE SURGES 
DESPITE WEAK ECONOMIC FUNDAMENTALS 
 
REF: A.) KINGSTON 693 
 
     B.) KINGSTON 633 
 
¶1. Summary:  Data released by the Jamaica Conference Board 
on April 4 showed that confidence soared to record levels 
during the first quarter of 2006.  Consumer confidence was 
underpinned by improvements in economic conditions and 
expectations for further output growth and job prospects, 
while business confidence was driven by the prospects for 
economic expansion and improved investment activity.  The 
improved confidence appears to be tenuous as best, given 
that the economic fundamentals remain weak.  Consumer 
confidence could wane in upcoming quarters if expectations 
are not met, while business confidence will depend on the 
performance of the economy.  End summary. 
 
¶2. Data published by the Jamaica Conference Board on April 
4 revealed that Jamaican businesses and consumers are both 
displaying high levels of confidence in the future. 
According to Professor Richard Curtin of the University of 
Michigan, who interprets the data, confidence is at a five- 
year high.  "Right now, data indicate that GDP growth will 
be higher this year than at any time over the last 
decade," he said.  The index of consumer confidence surged 
by almost 28 percentage points to 124.2, the highest level 
registered since surveys began in 2001.  Confidence was 
driven by expectations of higher economic growth, improved 
job prospects, and gains in current economic 
circumstances.  Residents of all regions, except tourist 
areas, recorded a peak in consumer confidence.  Residents 
in the tourism belt did not share this level of optimism 
despite buoyant tourist arrivals and the ongoing 
construction boom, suggesting that residents are cognizant 
of the susceptibility of the sector to hurricanes. 
 
¶3. The results of the first quarter survey show that 
consumers held the most optimistic view of the economy 
recorded in the history of the surveys, with only 27 
percent anticipating an economic downturn relative to 52 
percent in the previous quarter.  Consumers were equally 
optimistic about the prospect for jobs, with one-in-four 
Jamaicans expecting expanded employment opportunities, the 
best outlook since 2002.  This is not unexpected, given 
that there is a close correlation between economic 
expansion and job creation.  However, in recent times 
Jamaica has been affected by a phenomenon referred to as 
"jobless growth," despite record levels of foreign direct 
investment.  A number of Jamaicans are also considered 
"unemployable" due to their lack of skills, and even if 
skilled jobs are created Jamaicans might not be able to 
fill them.  Consumers also held the most positive 
expectations for income increases since the surveys began, 
with almost half of those surveyed anticipating higher 
incomes this year.  So high is the salary expectation, 
that a record 60 percent of all families are anticipating 
an improvement in their standard of living during 2006. 
The number of people planning to buy homes doubled 
relative to last year, reflecting: (1) anticipated higher 
incomes, following the expiration of the public sector 
Memorandum of Understanding (MOU), which froze and 
restrained salary increases in both the public and private 
sectors; (2) a significant increase in benefits from the 
National Housing Trust; and, (3) declining interest rates. 
 
¶4. Business confidence rose by 12 percentage points to 
119.3 during the first quarter of 2006, below the peak of 
127.3 a year ago.  Rebounding business confidence was 
underpinned by more favorable expectations of output 
growth during 2006.  Businesses were also upbeat about the 
investment climate and their financial situation.  The 
survey revealed that one in three firms expect the economy 
to expand, while only 25 percent expect worsening economic 
conditions, a dramatic recovery from the 54 percent 
registered at the end of 2005.  Business confidence was 
also bolstered by expectations of improved profits during 
¶2006.  Over 50 percent of the firms polled anticipated 
greater profits, while only 12 percent expect declining 
bottom lines.  With economic buoyancy anticipated, 37 
percent of businesses thought it was a good time to engage 
in investment opportunities, up from 31 percent during the 
last quarter of 2005.  However, investment projects remain 
stymied by relatively high interest and crime rates. 
Nevertheless, over 60 percent of firms reported an 
improvement in their financial status, just below the peak 
 
KINGSTON 00000771  002 OF 002 
 
 
recorded a year ago. 
 
¶5. The optimism, paradoxically, has not spilled over into 
the wider investment community, with the local stock 
exchange continuing to decline.  Courtney Williams, a 
Ministry of Finance contact, told emboff that the evidence 
does not appear to support the buoyancy, given the bearish 
mood of the investors in the equities market.  Output and 
inflation apart, the economic fundamentals appear to be 
weakening, with the GOJ expected to overshoot its revised 
fiscal deficit target of two percent of GDP (ref. A). 
This could lead to increased borrowing in upcoming 
periods, putting pressure on the very interest rates 
businesses are watching to increase investment.  The 
current account deficit, which ended the year at around 10 
percent of GDP, could also widen to near 12 percent this 
year, adding to the instability in the foreign exchange 
market.  This, combined with a disputatious industrial 
climate (ref. B) gives cause for concern.  However Keith 
Collister, of the Jamaica Chamber of Commerce, supported 
the findings of the survey.  Collister told emboff that 
business sentiment is built on the prospects for economic 
expansion.  He thinks that agriculture, construction and 
tourism could provide this impetus for growth.  "This 
could be the best year of economic growth in a decade," 
Collister said.  He maintained that, barring major shocks, 
economic growth should be between 2.5 and four percent. 
When asked why the optimism was not filtering to other 
areas of the market, Collister reminded emboff that the 
expectations were among real businesses and not the wider 
investment community. 
 
¶6.  Comment:  While business confidence is generally more 
robust and sustainable and should therefore not be 
underestimated, the improved confidence appears tenuous, 
given the weakening economic fundamentals.  Businesses 
often tend to be more upbeat at the start of the year, and 
this has been bolstered by the recent political changes 
and the attendant possibilities.  Consumer confidence, on 
the other hand, is more fragile and could be grounded in 
political expectations and hopes of a significant wage 
adjustment throughout the society.  Any deviation from 
these expectations could stymie spending plans and shatter 
confidence among Jamaicans.  End comment. 
 
TIGHE