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Business confidence falls to 15-month low

Thursday 30th September 2010

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New Zealand business confidence extended its downward spiral to a 15-month low as firms hunker down for a slow and tepid recovery, according to the National Bank Business Outlook, out today.  

Headline confidence dropped to a net 14% of companies expecting better times in the coming year, its lowest level since June last year, as people continue to pay down debt rather than spend.

Companies are more upbeat about their own activity outlook, although it still fell 1 point to a net 27%.  

"A real danger at present is that declining confidence or overly cautious stances become self-fulfilling," said the bank's chief economist Cameron Bagrie in his report.

"There are certainly reasons for caution. Just not of the wrapping in cotton wool or hibernation variety." 

This month, Reserve Bank Governor Alan Bollard pared back his forecast for economic growth by more than a percentage point over the coming few years as the tepid recovery in household spending caused a much softer recovery than earlier anticipated.

That's kept businesses on edge as they rebalance their books and streamline their operations. 

Just 0.8% of respondents expect to take on new staff in the coming year, down from a net 4.3% in August, while 1.9% intend to invest in their business compared to 3.1% a month earlier, and full capacity utilisation fell 3 points to a net 18%.  

Bagrie said with employment and investment intentions near zero, it's clear "business consider themselves to be in a holding pattern."  

Export intentions crept up 1 point to a net 32%. Residential construction turned positive, with a net 14% of respondents picking more house building, though commercial construction went negative a net 8.3% of respondents predicting less work in that sector.  

Pricing intentions slipped 2 points to 30%, though an increase in GST comes into effect tomorrow.

Firms see inflation at 2.94%, down from 3.1% a month earlier, and they've pared back their expectations for higher interest rates to a net 56% from 76%.  

Companies expect it to get tougher to access credit, falling to a net negative 7.9% from  negative 3.9% in August.  

The New Zealand Institute of Economic Research's quarterly survey of business opinion comes out next week.

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