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NZ business confidence tumbles

Monday 17th January 2011 1 Comment

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Business confidence has tumbled in the past year, the 2011 Grant Thornton international business survey of medium to large privately held businesses shows.

The survey found 33% of businesses in this country were optimistic, compared to 66% a year earlier.

Grant Thornton New Zealand national director tax Greg Thompson said factors such as international uncertainty, a high dollar and impending general election were keeping a lid on confidence.

"Household caution has weighed on consumer spending and housing market activity. This is expected to persist into 2011," Thompson said.

"There are increasing concerns regarding inflation, which is expected to surpass 4% in 2011. There are also fears of a policy response in the form of higher interest rates with high levels of private sector external debt resulting in a downgrade of the country's credit rating. Economic recovery is tepid and the pace of recovery has slowed."

He noted that the New Zealand Institute of Economic Research recorded a rise in optimism for the December quarter in its latest Quarterly Survey of Business Opinion.

The Grant Thornton survey also showed optimism falling in Australia to 37% from 79%.

In Australia, many exporters had come under pressure from a strong Australian dollar which remained close to parity with the United States dollar, Thompson said.

"Interest rates have risen from the low level of a year ago pointing to the possibility of some easing in consumer demand in the year ahead. Global growth prospects are also slightly less favourable than they seemed a year ago ahead of the expected bounce back from recession.

"And the present Queensland floods will also have a negative impact on confidence levels."

Latin America led the world in optimism with 75% of privately held business owners being optimistic about their region's economic performance in 2011. In the Asia Pacific region, excluding Japan, optimism was at 50%, while in North America it was 26%, with Europe the least optimistic region at 22%.



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Comments from our readers

On 19 January 2011 at 12:54 am Peter King said:
The commentary on this result seem to be far too simole. If one takes a wide view of economic conditions at the end of 2010 compared to those at the start of the year they have to be at least as promising and probably better. Internationally the ability of the fast growing developing economies, especially China, to weather the economic downturn has been confirmed. The successful European economies have demonstrated their commitment to the weaker ones despite some initial ill-judged posturing by Andrea Merkel. The worst affected European economies have embarked upon realistic deficit reduction programmes. Australia has continued to do well and the New Zealand housing market has come through the year without significant price decreases. Yes there are some individual events that are negative but only the inability of the USA to come to grips with its unsustainable fiscal deficit seems to be a macro scale risk. So why the big drop in confidence? A net 33% confidence at the end of the year seems reasonable and even maybe still too optomistic. I think that Grant Thornton should go back to the survey at the start of the year to answer the question. For a net 66% to be confident at the start of 2010 was completely unwarranted as per the risks above. To understand the reasons for this might give Grant Thornton some ideas of how to improve their survey so as to understand why sometimes businesses exhibit confidence out of touch with reality. It is interesting to know what the level of confidence is but it would be a great deal more interesting to know what the real chances of good (or bad) economic outcomes are. And as a side issue - do these respondents know something the rest of us do not? Why are they concerned about the up-coming general election when a change of government is unlikely? Are there adverse policy changes that they anticipate?
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