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Business confidence deteriorates in August

Thursday 29th August 2019

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Business confidence tumbled further in August with employment, investment and export intentions all falling to "dismal levels," ANZ Bank said in its monthly business outlook survey.

A net 52.3 percent of the 395 respondents expect general business conditions will deteriorate during the coming year, compared with 44.3 percent in July and 38.1 percent in June.  The agriculture sector is the most downbeat, with a net 68.3 percent expecting things to get worse. Services and construction are neck and neck with 50.6 percent of respondents in both categories expecting conditions to deteriorate. 

Critically, firms' optimism about their own activity also fell, with a net 0.5 percent now expecting things to get worse compared with the net 5 percent in the prior survey that still expected an improvement. The latest reading was the lowest in just over a decade. 

The New Zealand dollar eased on the data from 63.38 US cents to 63.13 cents. 

"The outlook for the economy appears to be deteriorating further, with firms extremely downbeat despite easier monetary conditions, fairly robust commodity prices, and positive population growth. Whatever the cause, the risk is rising that it becomes self-fulfilling," ANZ Bank chief economist Sharon Zollner said. 

Employment intentions fell 3 points to a net 9 percent of firms intending to reduce employment, the lowest since mid-2009. Investment intentions fell 4 points to minus 4. Profit expectations fell 4 points to a net 20 percent of respondents expecting profitability to decline, the lowest since mid-2009. A net 1 percent of firms expect exports to fall versus 1.4 percent that saw them rising in the prior survey. 

Pricing intentions fell 3 points to a net 20 percent of firms expecting to raise prices, despite firms reporting cost pressures lifting 2 points to a net 49 percent. Inflation expectations fell from 1.81 percent to 1.70 percent, the lowest since late 2016. 

The decline in inflation expectations will be of particular concern to the Reserve Bank, with the governor calling out declining inflation expectations as a key input in their decision to cut the cash rate by 50 basis points, Zollner said. 


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