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Business confidence thaws slightly

Tuesday 31st March 2009

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New Zealand business confidence edged higher this month, while measures for own activity and investments deteriorated, providing little sign that companies are shaking off the blues.

A net 39% of companies expect deterioration in business conditions over the year ahead, an improvement from the net 41% who saw worse times ahead a month earlier, according to National Bank's Business Outlook survey. A net 19% expect to reduce investment over the next 12 months, a record-low reading, while businesses that expect their own activity to worsen increased to 21.2% from 20.1%.

"Business confidence remains deeply stuck in the quagmire," said Cameron Bagrie, National Bank's chief economist. "Surprises and extraordinary news stories break daily, and financial markets, particularly the currency, can have all the demeanour of a headless chicken."

New Zealand's economy remains mired in recession for a fifth quarter, according to Treasury estimates and some economists predict the recession will grind into a sixth three-month period before showing signs of growth again. Unemployment is expected to reach 7% this year as companies eliminate jobs to cut costs as demand wanes. Central bank Governor Alan Bollard this month cut the official cash rate to a record low 3% and said there is room for further small reductions.

"The survey shows no sign of traction from efforts to stimulate the economy so far and the RBNZ may have to do more work yet," said Shamubeel Eaqub, economist at Goldman Sachs JBWere.

The agricultural sector was the gloomiest on the economic outlook, according to the survey, with a net 74.6% expecting worse times ahead, while the construction industry was the least down in the dumps, with a net 6.7% anticipating a poorer 12 months.

A net 85.9% of those surveyed expect unemployment to rise, with retailers and farmers feeling the most blue about the outlook.

Retailers had the most pessimistic view on the outlook for profits, with a net 54.7 expecting earnings to shrink. Store owners also topped the survey as being the most likely to reduce workers, at a net 43.3%.

The outlook for exports fizzled, with 2.1% expecting a pickup, down from 4.1% in the previous month's survey.

By Jonathan Underhill



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