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Growing ambivalence by business leaders about present economic conditions – BOJ survey

There is a growing ambivalence in the business community about present business conditions in Jamaica.

This is seen in the latest Survey of Businesses’ Inflation Expectations for December 2020, which was released earlier this week by the Bank of Jamaica (BOJ). In the survey, which captures the perception of chief executive officers, managing directors and financial controllers, the Present Business Conditions Index fell to 23.3 relative to 28.7 recorded in the previous survey in November 2020.

The decline in the Present Business Conditions Index reflected an increase in the number of respondents of the view that conditions are “worse”. However, the Future Business Conditions Index increased to 146.8 relative to 138.5 in the previous survey.

The outturn for the Future Business Conditions Index mainly reflected an increase in the proportion of respondents, who believe that conditions will be “better”. The survey of Businesses’ Inflation Expectations assesses the perception of business leaders about the future movement of prices, current and future business conditions and the expected rate of increase in wages/salaries.

The most recent survey was conducted between December 7, 2020 and January 8, 2021 and had 284 respondents.

INFLATION CONTROL AND EXPECTATION

As it regards the perception of inflation control, this showed an improvement in the December 2020 survey. This improvement was largely due to an increase in the proportion of respondents, who were “satisfied” with how inflation is being controlled.

This was partially offset by an increase in the proportion of respondents who were “dissatisfied” with how inflation is being controlled. As for inflation expectations, the 2020 survey showed respondents’ expectation for inflation for 2020 was 6.7 per cent.

However, this expectation was above the annual point-to-point inflation of 5.2 per cent for December 2020. Respondents’ expectation of inflation 12 months ahead increased to 7.2 per cent, up from the previous survey’s estimate of 6.4 per cent.

EXCHANGE RATE EXPECTATIONS

Respondents to the survey anticipated depreciation over all three time horizons. In the December 2020 survey, the exchange rate was anticipated to depreciate by 0.1 per cent, 0.7 per cent and 0.8 per cent for the three-month, six-month, and 12-month time horizons, respectively.

This represents a much slower pace of depreciation for the three-month, six-month and 12-month time horizons relative to the previous survey. Respondents in the November 2020 survey expected the rate to depreciate by 1.7 per cent, 2.5 per cent and 3.0 per cent over the three-month, six-month and 12-month time horizons, respectively.

The Statistical Institute of Jamaica (Statin) undertakes the survey 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. These responses assist the BOJ in charting future policy decisions.