NZ business confidence plummets to lowest level since GFC as outlook for profitability drops

Tuesday 7th July 2015

New Zealand’s business confidence plunged to the lowest level in three years in the second quarter as companies became pessimistic about profitability expectations.

A net 5 percent of firms in the New Zealand Institute of Economic Research’s quarterly survey of business opinion expect general business conditions to improve, down from 23 percent three months earlier and the lowest level since June 2012. On a seasonally adjusted basis, net optimists fell to 7 percent from 20 percent the previous quarter.

A net 2 percent of respondents were pessimistic about their expected profitability in the coming quarter, down from an optimistic reading of 12 percent in the previous quarter. Meanwhile, inflation pressures were weak, with only a net 1 percent of firms able to raise prices over the past quarter, the lowest level since 2009.

The survey doesn’t cover the agricultural sector, but looking across the regions the decline in dairy prices was evident, with some dairy-intensive regions such as Southland, Waikato and Canterbury expecting worsening conditions, senior economist Christina Leung said.

“The continued fall in dairy prices has had a knock on effect on confidence - there’s a lot more uncertainty in when we’re going to see a recovery in dairy prices. The knock on effects in terms of spending, particularly the retailers see,” Leung said.

A net 25 percent of financial services firms expect domestic interest rates to fall over the next 12 months, a jump from the net 4 percent in the previous quarter. Of responses, 80 percent were received before the Reserve Bank moved to cut rates at its last monetary policy statement and Leung said since then expectations would have changed.

NZIER expects two further cuts to the official cash rate in July and September.

Experienced domestic trading activity, which NZIER says mirrors economic growth, dropped to 10 percent in the second quarter, from 19 percent.

One bright spot was the building sector, Leung said. Output increased and a net 23 percent of construction firms hired more workers, up from 22 percent in the previous quarter. Capacity utilisation was at a record of 93.4 percent in the quarter, from a previous 92.3 percent, which largely reflected an increase among builders.

Retailers were particularly downbeat. After disappointing Christmas sales, firms continued to pare back expectations for sales, Leung said. A net 7 percent of retailers surveyed were pessimistic about sales, a change from the net 21 percent who were positive in the previous quarter.

BusinessDesk.co.nz

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