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Tough times persist for SMEs, while large firms recover: QSBO

Tuesday 6th April 2010

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Small, medium-sized firms and those without national reach are still doing it tough, as the gap between hopes and the reality of economic recovery remains wide, according to the latest quarterly survey of business opinion from the New Zealand Institute of Economic Research.

The March quarterly QSBO showed the strongest business sentiment since 1999, with a net 36% of firms optimistic about the future compared with 23% net positive in December. But NZIER’s principal economist Shamubeel Eaqub said the figure was “meaningless,” showing no more than a bounceback from the depths of the 2008-2009 recession.

"The recovery is still ongoing, but it's happening at very different paces across parts of the country, sectors, and firm size," he said. "It's consistent with a shallow, gradual economy."

There was no "smoking gun" that would require the Reserve Bank of New Zealand to raise interest rates before September, when NZIER believes the RBNZ will act.

Hiring intentions, inventories, retail sales and building consents remain weak, and by comparison with previous recoveries, the growth spike had come to an end early. While capacity use remained above the long term average, at 90.5%, there was no sign that capacity constraints were holding firms back.

Rather, the difference in the recovery on this occasion was persistent ongoing lack of demand, reflecting the "first time we've seen deleveraging in New Zealand's modern economic history".

"People just aren't inclined to buy stuff," said Eaqub, who was "shocked" that manufacturing inventiory continued to run down when they had been expected to start rebuilding.

"People are saying things are picking up, but they're not doing what you'd expect."

Eaqub said NZIER remained pessimistic about economic growth outlook, with investment in Rugby World Cup occurring this year and no reason to expect any greater impact from the cup activity next year than the 1.5% boost observed in Australia when it hosted the RWC.

"The economy is definitely on the mend," said Eaqub. "Construction is recovering and retail is more realistic. Everything is heading in the right direction, but it's shallower than and we've seen and been expecting, especially given how deep the recession has been."

While manufacturers reported strong exports in the quarter just gone, and remained optimistic about export sales into the future, that growth was being offset by weak domestic demand.

Net expectations for profitability in the quarter ahead remained negative at minus 2%, but significantly improved from negative 19% in the quarter just gone. While domestic trading activity was net negative 5% in the quarter just past, a net 20% of firms expect improving conditions to improve in the quarter ahead.

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