Business confidence slumped by 22 per cent close to six year lows, depressed by balance sheets under stress and an increasingly grim outlook on prospects for the local currency and the wider economy.

But consumers, while they too were less optimistic about jobs - reflected in a five per cent decline in the confidence index - still expect their incomes to increase, leading analyst Dr Richard Curtin to question whether Jamaicans were sufficiently educated on the gravity of the economic situation.

"They don't think the economy is going to slow much in the next year," he said.

"They are not happy about jobs but think their income is going to be okay, and expect to spend at a high rate - and this means that they have an outlook that must change," said Curtin.

Even if income expectations were based on wage increases in line with inflation, it still did not totally explain the level of consumer optimism, Curtin said at the launch of the indices in Kingston.

In the fourth quarter of 2008, the index of business confidence fell from 115.9 in the third quarter to 89.9.

The consumer confidence index declined to 125.7, a two-year low.

"There is widespread pessimism among firms in particular," said Professor Curtin, head of the Survey Research Centre at the University of Michigan.

A significant change

"When we ask them about their investment plans, they just plunge. It is such a significant change that it dominates all of the other components."

Just 20 per cent of the firms surveyed said they planned to invest in the expansion of their business, less than half of the 45 per cent recorded in the third quarter of 2008 and the lowest level recorded since the start of the survey in 2001.

A third of all firms also reported that last year's profits were less than they had anticipated, nearly twice the 18 per cent reported at the close of 2007.

"The current profits are disappointing and even when they look at the future, they expect lower profit margins in the future and these are relatively low levels in the survey history," said Curtin.

"They expect the overall financial situation of the firm itself, the balance sheet of the firm to deteriorate and to be worse off ... half of the business firms expect the economy to fall in recession."

Indeed, companies have seen an increase in the cost of doing business in 2008, the result of inflation, but also depreciation for the Jamaican dollar which has boosted the cost of energy and imported raw material.

Higher salaries expected

Curtin said there was a 50 per cent or more chance that the Jamaican dollar would depreciate even more this year.

Consumers too expect conditions to decline, but this has not affected their outlook on future economic prospects, the survey found.

More than half of consumers surveyed, 52 per cent, said they expected higher salaries, notwithstanding that 84 per cent said jobs were in short supply, while Jamaicans overall expected their living standards to remain favourable.

"If we expect the economy to worsen in another a year and a half or the next two years - as I expect the Jamaican economy to worsen - you want to prepare those businesses and consumers to the eventuality," said Curtin.

"You want to ensure that consumers understand that they need to prepare themselves and you don't want to have a situation where all of a sudden consumers are faced with a significant and sharp downturn that they did not expect and that causes fear and resentments," he said.

Curtin, however, noted that this was an opportunity for the Govern-ment to craft better economic policies that will favour growth and development.

dionne.rose@gleanerjm.com