NZ businesses still gloomy about economy with weak earnings outlook

Tuesday 30th April 2019

New Zealand firms remain pessimistic about the general economic outlook, with few seeing growth in their own activity and more than half expecting weaker earnings.

A net 37.5 percent of the 353 respondents to the ANZ business outlook expect the economy will slow over the coming year, in line with the 38 percent reading in March. There was a small improvement in expectations for firms' own activity with a net 7.1 percent anticipating an improvement, compared to 6.3 percent a month earlier.

While a net 46.6 percent of firms anticipate higher costs, just 26.7 percent plan to raise prices. A net 13 percent expect profits to fall in the coming year, a slight improvement from the 14.4 percent expecting weaker profits a month ago.

"The New Zealand economy is experiencing a soft patch that is proving reasonably long-lasting. GDP growth has steadily declined and we expect this to remain the case out to the middle of this year, based on leading indicators such as our ANZ Business Outlook survey and the ANZ Light Traffic Index," ANZ New Zealand chief economist Sharon Zollner said in a note.

The survey has been gloomier than its consumer confidence counterpart, in part because business confidence readings tend to be gloomier when there's a Labour-led government, irrespective of economic growth.

Businesses have cited regulatory uncertainty as a major cause for concern since the Labour-led coalition took office in late 2017. A major bugbear was removed this month when Prime Minister Jacinda Ardern said the Labour Party won't introduce a capital gains tax under her leadership.

The threat of such a tax encouraged the sale of local assets, with ASX-listed Integral Diagnostics today saying several high-quality assets had come to market purely on the prospect of capital being taxed. The Australian company spent $105 million in cash and scrip last year buying four New Zealand radiology clinics.

ANZ's Zollner said Ardern's call on the capital gains tax came too late for any meaningful impact on the latest business confidence survey. She will be watching for a bounce next month.

Residential building intentions deteriorated in the month with a net 20 percent of firms expecting to cut investment, compared to 16 percent predicting a fall in the March survey. Commercial construction intentions were more upbeat, with a net 15.8 percent predicting to lift their investment, compared to 4.5 percent anticipating a reduction a month earlier.

Hiring intentions improved to a net 4.3 percent of respondents expecting to take on new staff, from 0.9 percent in March, while investment intentions edged up to a net 1.5 percent reading from 0.9 percent.

A net 29.9 percent of firms predict lower interest rates in the coming year, compared to a net 12.1 percent expecting higher interest rates a month ago. However, a net 35.1 percent anticipate access to credit will become more difficult.

ANZ economists expect the Reserve Bank will cut the 1.75 percent official cash rate in August.

(BusinessDesk)

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