Business confidence improves

Wednesday 27th August 2008

New Zealand business confidence improved this month, with more companies expecting a pick-up in their own activity amid falling interest rates.

A net 21% expect worse times ahead, according to National Bank's Business Outlook survey, an improvement from the net 43% anticipating tougher times in the previous month. The up-tick snapped five straight months of declining confidence.

"The economic patient is starting to show signs of life," said Cameron Bagrie, National Bank's chief economist. "Signs of improving confidence is the first critical step" in breaking a downward spiral in the economy.

Gross domestic product shrank in the first half of the year, according to a Treasury assessment, the first recession since 1998, amid soaring costs for fuel, food, raw materials and credit. The central bank cut interest rates for the first time in five years in July and said more reductions may follow.

Companies became more optimistic about their own sales prospects, with a net 4.7% expecting a pick-up over the next 12 months. A month earlier, a net 8.2% expected a decline.

The number of firms expecting profits to shrink abated in the latest survey to a net 16% from 27%. A net 8.3% expect to lay off workers, an improvement from last month's net 13.6%.

The outlook for exports and pricing intentions were the most robust indicators in the survey. A net 25.5% expect exports to pick up and a net 36% expect to raise prices.

By Jonathan Underhill

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