Business conditions worse off now says BOJ reportTuesday, May 26, 2020
BY DURRANT PATE
Jamaican businesses are exhibiting a grave lack of confidence in local business conditions according to the latest findings of the Bank of Jamaica (BOJ) Present Business Conditions Index.
The index, which covers the March 2020 quarter, decreased to 114.4 relative to 115.8 recorded in the previous January 2020 survey.
The decline in the Present Business Conditions Index reflects an increase in the number of respondents who are of the view that conditions are “worse”.
The Future Business Conditions Index also decreased to 93.7 relative to 127.6 in the previous January 2020 survey.
The out-turn for the Future Business Conditions Index mainly reflects an increase in the proportion of respondents who believe that conditions will be “worse.”
The index is a part of the Survey of Businesses’ Inflation Expectations, which is prepared by the BOJ’s Sector Analysis Department in the Research and Economic Programming Division.
The survey captures the perception of chief executive officers, managing directors, and financial controllers about the future movement of prices, current and future business conditions, and the expected rate of increase in wages/salaries.
Business conditions worse off now says BOJ report Bank of Jamaica in downtown Kingston.
EXPECTED INCREASE IN OPERATING EXPENSES
The dim view of business conditions by the businesses surveyed could be explained by an anticipated increase in operating expenses.
Respondents to the survey indicated that they expected the largest increase in production costs to come over the next 12 months.
According to the survey, released on the weekend, “These increases will emanate from stock replacement, utilities, and raw materials. The cost of wages and salary is anticipated to be the least likely to increase.”
They survey also showed up the lack of confidence in the stability of the dollar, where businesses are expecting a higher level of depreciation of the local currency in the upcoming periods.
EXCHANGE RATE EXPECTATIONS
Similar to the previous survey, respondents anticipate depreciation over all three time horizons 3-month, 6-month, and 12-month period. In the March 2020 survey, the exchange rate was anticipated to depreciate by 0.7 per cent, 1.7 per cent, and 0.5 per cent for the 3-month, 6-month, and 12- month horizons respectively.
This represents a slightly higher pace of depreciation for the 3- month and 6-month horizons relative to the expected depreciation of 0.2 per cent and 0.6 per cent that was recorded for the time horizons in the December 2019 survey.
For the 12-month horizon, the depreciation recorded was 1.2 per cent.
The March 2020 survey indicated an expected inflation of 5.6 per cent for calendar year 2020, which is higher than the December 2019 survey out-turn of 4.9 per cent.
This expectation was above the annual point-to-point inflation of 4.8 per cent for March 2020. The expected inflation 12 months ahead increased to 6.1 per cent relative to the previous survey out-turn of 5.1 per cent.
The Statistical Institute of Jamaica undertakes surveys of businesses on behalf of the BOJ to ascertain the expectations of these economic agents about variables, which are likely to have an impact on inflation in the near-term.
The survey was conducted between March 2, 2020 and April 6, 2020 and had 237 respondents.
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