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Business confidence dims

Wednesday 28th July 2010

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New Zealand business confidence has dimmed for a third month in a row, marking "a clear change of direction" in sentiment, according to the National Bank Business Outlook.

Headline confidence dropped to a net 28% of companies surveyed predicting better times in the coming year from a net 40% last month. Companies' investment intentions sank 5.4 points to a net 4.8% looking to inject capital into their business, while expectations of increased profits over the next year halved to a net 9.4%.  

"At this stage in the economic cycle, we would have expected a stronger rebound in private sector investment by now, particularly given the sharp contraction seen during the recession," the bank's economists said in their report.

"The movements in this month's survey are beyond what could be put down to usual monthly volatility and the past three months has seen a clear change in direction."

The sagging business sentiment comes ahead of the Reserve Bank's official cash rate review tomorrow, which will likely see Governor Alan Bollard hike the benchmark interest rate a quarter-point to 3%.

The survey is the first survey since the New Zealand Institute of Economic Research's quarterly survey of business opinion, which called for a halt on interest rate hikes as the country's economic recovery stalled.

Local firms have trimmed back their appetite to hire new staff, with a net 8.3% expecting to increase their payrolls over the next year from a net 13% last month. A net 3.5% predict unemployment to rise in the coming 12 months, a turnaround of a net 15% expecting a fall in June.

The bank said the "silver lining" in the survey was the pullback in pricing intentions, which fell to a net 31% of respondents from a net 39% in June.

"What is perhaps surprising is the fact that this reading is not even higher given that almost all firms selling to the final consumer will have to pay higher GST," the report said. Inflation expectations rose to 3.2% from 3.1%.

Companies' expectations for their own activity held up better than the headline confidence figure, falling to a net 32% from a net 39% last month.

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