Business confidence hits low
The latest quarterly survey of business opinion (QSBO) published by the New Zealand Institute of Economic Research (NZIER) shows a further deterioration in business confidence with 28 per cent of businesses expecting economic conditions to worsen – the lowest level since March 2009.
Firms’ own activity for the September quarter and expectations for the next quarter both fell, indicating a slowing in economic growth over the second half of 2018.
A net 0.4 per cent of firms reported higher demand over the September quarter – the lowest level since September 2012. They are worried about government policy, labour costs and availability, margins and consumer confidence.
“Through the 50-year history of the QSBO, businesses have tended to be more downbeat about general economic conditions than their own domestic trading activity,” says a spokesman for the NZIER. “The difference between headline business confidence and firms trading activity tends to be larger under a Labour-led government.
“This quarter, we added a supplementary question to delve deeper into the key influences on general business confidence. We found government policy, labour costs, consumer confidence, availability of labour and operating margins were the key considerations for businesses when it came to an assessment of general economic conditions.
“Larger firms were more influenced by government policy when assessing the general business outlook. Retailers, manufacturers and builders were more influenced by concerns over labour shortages and costs and consumer confidence.
“This suggests uncertainty over the effects of new government policies and higher costs have contributed to the decline in business confidence over the past year.
“Further decline in profitability leads to softer hiring and investment intentions. Profitability continued to worsen, reflecting intensifying cost pressures for many businesses, which remained pessimistic about an improvement in profitability.
“This continued deterioration in profitability has made businesses more cautious, with three per cent of businesses reducing headcount in the September quarter. Businesses were also more circumspect about new investment, particularly for buildings. If profitability was to continue to worsen, businesses will likely hunker down and reduce investment and hiring.”
Although the downbeat mood was broad-based across sectors, manufacturers have overtaken retailers as the most pessimistic sector. Rising cost pressures also weighed on building sector confidence, with more than half of firms in the sector reporting higher costs.
