NZIER sees slow second half as business confidence and activity slide

Tuesday 9th October 2012

New Zealand's economic growth is poised to slow in the second half of the year as local businesses got gloomier in the third quarter in a deteriorating trading environment, according to the New Zealand Institute of Economic Research.

The Wellington-based consultancy sees the pace of annual growth slowing to 1.5 percent in the second half of the year from a pace of 2.6 percent at the end of June, based on a more pessimistic outlook in the September quarterly survey of business opinion.

A net 5 percent of firms were pessimistic about the general business situation, worse than a net 1 percent in the June quarter, and a net 7 percent experienced slower trading activity in the period, compared to a flat rate in the prior period.

"The recovery remains disappointing," principal economist Shamubeel Eaqub said in a statement. "Auckland is growing, but the post-quake surge in Canterbury is moderating and activity elsewhere is slowing."

New Zealand's economy grew 0.6 percent in the June quarter on the strength of domestic milk production and increased building activity, following on from a 1 percent pace of quarterly expansion in the first three months of the year.

Today's QSBO showed local manufacturing activity slowed sharply, with a net 26 percent experiencing lower output from a net 3 percent a quarter earlier, while services showed an unexpected deterioration, with a net 14 percent decline in volume of services, from a net 2 percent decline in the June period.

Eaqub said the manufacturing slowdown was probably due to the big build-up in inventories last year after strong climatic conditions stoked dairy production, though it wasn't limited to food producers and may reflecting a slowing Australian economy.

Labour conditions softened in the quarter, with a net minus 9 percent in employment compared to a net minus 4 percent, while hiring intentions were unchanged at net 4 percent of firms expecting to take on new staff.

"Nothing feels particularly nice on the economic front - it doesn't look like we're heading into recession, but it doesn't look like the acceleration in the economy is going to continue," Eaqub said.

A net 15 percent of financial services firms expect interest rates to rise in the coming year, turning around from a net 6 percent picking a cut.

Eaqub said he doesn't expect the Reserve Bank to move the 2.5 percent official cash rate soon, and said it would take a major deterioration in the global economy to cut rates or signs of inflation starting to rise.

Inflationary pressures remained subdued, and consistent with the consumer price index staying in the middle of the central bank's target band of between 1 percent and 3 percent.

A net 21 percent of firms experienced smaller profits compared to a net 13 percent in the June quarter, though a net 3 percent of companies are picking better earnings.

Building investment intentions were unchanged at a net minus 3 percent in the quarter, while machinery and plant investment intentions deteriorated to a net minus 1 percent from a net positive 2 percent.

Retailing continued its gradual improvement, with a net 4 percent experiencing better sales, compared to a net 2 percent seeing smaller sales in the previous quarter. The bulk of those gains in the sector were in Auckland, Eaqub said.

BusinessDesk.co.nz

Comments from our readers

No comments yet