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NZ business confidence hits 10-year low

Tuesday 2nd July 2019

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New Zealand business confidence fell to more than a 10-year low in the June quarter, with manufacturers the gloomiest sector.

A seasonally adjusted net 31 percent of firms surveyed in the New Zealand Institute of Economic Research's quarterly survey of business opinion expect economic conditions to deteriorate during the coming months, compared to a net 28 percent who were pessimistic in the prior quarter.

Business confidence was at its lowest level since March 2009.

Adding to the gloom, a net 4 percent of respondents expect their own business activity to decline in the next three months, versus a net 5 percent that saw it picking up in the prior survey.  

A net 4 percent experienced a contraction in activity in the June quarter versus a net 2 percent that experienced expansion in the March period.

“These measures suggest a softening in annual GDP growth to below 2 percent over the second half of 2019,” NZIER principal economist Christina Leung said.  

Sentiment remained the weakest in the manufacturing sector with confidence among manufacturers at the lowest level since December 2008. A net 59 percent of manufacturers expect general business conditions to deteriorate during the next six months versus a net 41 percent in the prior quarter.

“That reflects softer demand and overall margin compression,” said Leung, adding that manufacturers have seen a decline in both domestic demand and exports.

“The deterioration in the global outlook is starting to impact export demand for manufacturers,” she said.

The QSBO showed profitability remained weak in the June quarter, with a net 27 percent of firms reporting lower earnings versus 21 percent in the prior quarter.  A net 27 percent expect to report lower earnings in the next quarter versus a net 16 percent who had that view in the March quarter, NZIER said.

While profitability showed some signs of improvement in the construction and retail sectors, the dire mood in manufacturing weighed on the overall mood. “Businesses are still cautious about expansion” although there are some signs of optimism in business investment, said Leung.  

The QSBO showed a net 4 percent of firms intend to invest in new buildings versus a net zero in the prior quarter.  

A net 4 percent plan to invest in plant and machinery versus a net 2 percent that expected to reduce investment in the prior quarter.

Firms are still finding it difficult to hire new staff, with a net 43 percent saying skilled labour is hard to find, versus 50 percent in March.

While the situation is slightly better “it is still acute by historical standards,” said Leung.

 A net 34 percent found it hard to attract unskilled labour, compared to a net 33 percent in the prior survey.

Companies still expect to face cost pressures with a net 40 percent anticipating increased costs compared to 43 percent in March.

In terms of experienced costs, a net 43 percent reported higher costs in the June quarter, compared to 38 percent in the prior period.

Pricing intentions fell, with a net 13 percent expecting to lift prices in the coming quarter versus 27 percent in the March quarter. A net 12 percent raised prices in June versus 16 percent in the prior period.

Leung said that, given these results and considering what the Reserve Bank of New Zealand has indicated in terms of its concerns about global growth, she is now expecting it to cut the official cash rate by 25 basis points in August to 1.25 percent. She had previously expected a cut in September.

“As long as other central banks are cutting, with the effects on the currency, we are likely to be led lower,” she said.

At this point, she is only expecting one more rate cut. 

(BusinessDesk)



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