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Study: Consumer Confidence Down

September 9, 2005

COSTA Ricans are feeling glum about their finances: consumer confidence is down, which means improvement may not be on the horizon for the country’s economy, according to a survey released recently by the University of Costa Rica’s School of Statistics. On a scale of 1 to 100, consumer confidence in August rated 34.2, down from 39.2 in March. While the index has been lower – it reached 33.1 in September 2004 – it has decreased significantly from a peak of 44.5 in September 2002, when the quarterly survey was first taken, explained Johnny Madrigal, a professor of statistics and the survey’s lead author.Pessimistic consumers, reflected in the low confidence rating, will likely cause reduced consumer spending in the coming months. The index is an indicator of future activity, predicting what is in store for the Costa Rican economy in the short term, Madrigal said.The professor blamed uncertainty regarding the future of the government’s Permanent Fiscal Reform Package and the Central American Free-Trade Agreement (CAFTA), as well as high oil prices and inflation in general, for consumers’ pessimism.“People do not see a clearly defined plan of development from this administration,” he said. “They distrust the economic policies.”Furthermore, the number of people who believe it is a bad time to buy a car or house has also increased. Nearly 70% believe it is a bad time to buy a car, while 60% believe this about buying a house.Tough economic times have burned a hole in people’s pockets, reducing their discretionary (disposable) income for goods that aren’t basic necessities.When people perceive a loss in discretionary buying power, it doesn’t hurt large manufacturers, but rather the service sector, Madrigal said.Consumer confidence levels are in tune with negative outlooks expressed last month by the business sector and economic experts. However, according to data from the Central Bank, actual consumer spending is increasing despite the tough economic times.Growth in consumer spending at times of decreased purchasing power means Costa Ricans are increasingly turning to credit to finance purchases. When this behavior continues it could become unsustainable, bringing dangerous consequences for consumers, Madrigal warned.The poll was conducted Aug. 3-11 in 700 homes around Costa Rica and has a margin of error of 3.5%.

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