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Business confidence goes down the gurgler

By Neville Bennett

Friday 30th June 2000

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The authoritative National Bank's Business Outlook for June, released today, is a shocker. The results are the worst since 1988. June was the second worst on record.

Last month a net 21% of firms expected general conditions to deteriorate in the coming year.

This has now risen to 56% of firms feeling pessimistic. More firms are pessimistic about their own condition than any time since the 1991 recession.

Only 8% of respondents are optimists. Presumably they represent agricultural and manufacturing exporters, who are thriving on a low dollar.

Why does confidence matter? The answer is simple, the bank says: "In this month's survey expected profits have been slaughtered, anticipated employment and unemployment are awful and investment intentions have been pummelled to their lowest level since 1988."

Moreover, it is possible inflation will go through the Reserve Bank's 0-3% band. Most of the rise is due to education, tobacco and petrol. As there is no excess domestic demand in the economy, Brendan O'Donovan of the National Bank advises Reserve Bank governor Don Brash to "do nothing."

Mr O'Donovan proffers this advice freely despite being put down by Michael Cullen last month as a person of "limited intelligence." One wonders what epithet he risks this month.

New Zealand's pessimism stands out internationally. The Economist reports the world's businessmen are now more optimistic than they have been for 11 years. Confidence has slipped in only two countries: Italy, slightly, and New Zealand, markedly.

Meanwhile, another study has shown consumer confidence is at its lowest level since September 1998.

The latest WestpacTrust- McDermott Miller consumer confidence survey found the index dropped 19.1 points to 103.9.

The fall was the largest reported in one quarter since the survey began in 1988.

WestpacTrust said consumers pointed to a number of reasons for their loss of confidence, including higher interest rates and lower business confidence.

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