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NZ business confidence dims in April, firms dial back own trading expectations

Monday 30th April 2018

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New Zealand business confidence fell in April, matching a dip in consumer sentiment, as already downbeat firms scaled back expectations for their own trading activity. 

The ANZ Business Outlook reported a net 23 percent of businesses were pessimistic about the year ahead, versus 20 percent in March. Confidence dropped to an eight-year low in November on political uncertainty when the new Labour government took office. Fewer companies saw their own activity expanding, at net 18 percent compared to 22 percent in March. That measure has a stronger correlation with GDP growth, and remains below the historical average of 28.

"The survey was a mixed bag this month, consistent with an economy pushing its way through capacity constraints and some residual policy uncertainty but with some solid support from record-high terms of trade”, said ANZ Bank New Zealand chief economist Sharon Zollner. "All sectors are in the red, with services the least pessimistic and agriculture the most. Agriculture did manage a small gain on March, but construction plummeted to its lowest level since 2008."

On Friday, ANZ's consumer survey showed confidence dropped back to long-run averages in April as consumers grew less optimistic about their financial futures. Of that survey's 1,005 respondents, a net 13 percent saw good economic times in the coming 12 months, down from a net 25 percent in March, and the five-year outlook dropped 7 points, with a net 18 percent seeing good times ahead.

"Our composite growth indicator has now dipped to around 2 percent year-on-year growth," Zollner said. "We think the economy has more in the tank to keep growth above that, but with consumer confidence dipping and business growth indicators still languishing, it won’t necessarily be as smooth sailing as it has been."

The survey showed a turnaround in earnings expectations, with a net 1 percent of the 338 respondents expected profit to shrink in the year ahead, versus net 6 percent predicting profits to rise in March. Employment intentions fell to a net 9 percent from a net 10 percent in the prior month.

Across the four sub-sectors included, all remained negative on general business conditions. Agriculture remained the most negative, with a net 45.7 percent of respondents expecting business conditions to deteriorate, while retail continued to worsen, at -21.5 percent from -15.4 percent the previous month. Manufacturing improved to -25.8 percent from -33.3 percent and construction dropped to -36 percent from -33.4 percent.

Residential construction intentions dropped to a net 9 percent positive from 33 percent, while commercial construction intentions eased to 5 percent from 9.5 percent.

ANZ's Zollner said that data "seems at odds with activity and pricing in the housing market having found a floor, not to mention the KiwiBuild pipeline on offer. The data is volatile, but expected profitability has been in decline for the past 18 months, perhaps reflecting that the sector is hitting resistance in terms of its ability to pass higher costs on."

Zollner said inflation expectations and pricing intentions were little changed in the survey, with expectations at 2.11 percent from 2.1 percent and pricing intentions down to a net 22.3 percent of firms expecting to raise prices from 29.1 percent in March. Interest rates were expected to rise by a net 40.3 percent of respondents, from net 40.2 percent in March.



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