Confidence on the wane, but consumers and firms willing to borrow
Published:Wednesday | October 16, 2024 | 12:09 AM
More than half of businesses and a quarter of consumers need cash or a loan, according to the latest JCC Business and Consumer Confidence Indices released on Tuesday.
Consumer confidence dipped to 168.4 points in the third quarter, 0.7 per cent lower than the previous quarter. Business confidence came in at 132.2 points, down by 0.6 per cent. The indices, now in their 90th quarter, captured the views of 649 consumers and 118 business experts.
“Overall confidence has fallen quarter-to-quarter,” said Don Anderson, executive chairman of Market Research Services Limited, which conducts the surveys on behalf of the Jamaica Chamber of Commerce.
For the first time, the survey asked about the demand for loans, finding that 58 per cent of the business respondents were in need of financing. Half of those businesses indicated they would bank loans, while four per cent prefer equity investors.
Among consumers, 25 per cent admitted they needed a loan. Of that group, 60 per cent would approach a financial institution, 24 per cent would borrow from friends or family, and 26 per cent would dip into their savings.
“Businesses seem to be managing their loans well,” said Anderson, noting that three-quarters of business respondents reported no issues in meeting their financial obligations.
Consumer and tourism loans, however, have soured somewhat, accounting for the bulk of the 18 per cent growth in past-due loans from $50 billion in January to $59 billion in July, according to Bank of Jamaica data. Loans that are past due beyond 90 days are categorised as non-performing, which still accounts for under three per cent of the total $1.25 trillion in loans across the commercial banking sector.
Chairman of the Development Bank of Jamaica, Paul ‘PB’ Scott, commented on the rising cost of capital due to increased central bank rates.
“There will be failures – not institutions, but investments will fail. You will have some bad debt, bad equity transactions, but that’s the nature of capitalism,” Scott said, who is also chairman, CEO and principal shareholder of the Musson Group. He added that while some will experience losses, it’s not a binary outcome where everyone loses.
Scott noted that more than three-quarters of small firms are now paying 15 per cent interest on loans or higher.
“Three years ago, only 20 per cent of loans for small firms carried interest rates above 15 per cent. This year, it’s 76 per cent,” he said, indicating a significant rise in the cost of capital for small businesses.
When asked about the prospect of interest rate reductions, Gerald Wight, vice-president of investment banking at GK Capital Management, said: “It will take time. Each institution will make its own determination, but eventually, rates should come down.”
Sydney Thwaites, president of the Jamaica Manufacturers and Exporters Association, expressed concern about the cumulative impact of higher interest rates on business confidence.
“We were reaching a point of fatigue. Without a decrease in rates, it could have worsened,” Thwaites said, adding: “As we move forward, we need to see how this translates into lower costs for businesses.”
Amid the dip in both business and consumer confidence, a growing number of respondents — around one-third — now expect the economy will worsen within a year. Among businesses, 27 per cent expect a decline, up from 19 per cent in the previous quarter and 22 per cent a year earlier. Concerns include slow economic recovery, rising crime, inflation, currency instability, and reduced disposable income.
“Consumers are not optimistic about the present and are cautious with their spending,” said Anderson, adding that less than 10 per cent of consumers believe jobs are plentiful.
Half of households are hopeful that they will see an increase in income, but those anticipating a decrease rose to 8.2 per cent in the third quarter of 2024, up from 7.7 per cent in both the first quarter of 2024 and the third quarter of 2023.
Also, half of businesses are hopeful that things will improve in the short term.
Remittances are now supporting 28 per cent of households, up slightly from 27 per cent in 2023, though still below the pre-pandemic average of 35 per cent. Anderson noted that remittance recipients struggle to save, using most of the money to cover daily expenses.
Crime remains a top concern for two-thirds of consumers, with unemployment cited as the second most pressing issue. Many believe that creating more jobs and opportunities for youth would be the best way to combat crime.