Sharp drop in business confidence

There has been a steep drop in business confidence following last year’s General Election, according to the latest NZIER Quarterly Survey of Business Opinion. The report states that 11 per cent of businesses are expecting economic conditions to degenerate over the first half of 2018 due to uncertainty over Government policies. Previous QSBO surveys have shown business confidence tends to fall after Labour takes office, in contrast to a lift in confidence when National takes office, but the effect on actual activity has been muted. However, the bout of pessimism was not reflected in activity indicators. Domestic sales remain solid in the retail and manufacturing sector. The building sector also reported solid output and new orders. Across the main centres, the pessimism was most evident Wellington and Canterbury. In particular, a net 33 percent of Wellington businesses expected a worsening in economic conditions over the coming months. There is also a weakening in profitability, with a net 7 percent of businesses reporting a decline in profitability over the past quarter.  Weaker confidence and profitability is affecting business investments; only a net 2 percent of businesses plan to invest in new buildings, a sharp drop from 18 percent in the previous quarter. Hiring intentions are also lower, despite solid hiring in the past quarter. These developments point to a softening in growth over the coming year.