Business confidence slowly recovering
Business confidence in New Zealand started to climb at the end of 2019, with fewer companies expecting a worsening in general economic conditions.
The latest Quarterly Survey of Business Opinion by the New Zealand Institute of Economic Research (NZIER) shows the net proportion of businesses bracing for economic conditions to deteriorate dropped on a seasonally adjusted basis to 26 per cent in the December quarter from 35 per cent in the September quarter.
Sentiment in manufacturing, building and retail improved, while the services sector is now the most pessimistic, although its sentiment also climbed in the latest survey.
The December figures reveal 20 per cent of manufacturers expect worsening economic conditions over the coming year – an improvement from the 52 per cent in the previous quarter. During the same period, the services sector improved from 38 per cent to 26 per cent.
But while each sector is less pessimistic about the economy, trading activity is still soft. A net 11 per cent of respondents reported reduced demand in the final three months of 2019, a similar level to the previous quarter, suggesting annual GDP growth of about one per cent towards the end of 2019.
Despite those findings, NZIER principal economist Christina Leung, pictured, says the organisation is sticking with its forecast of two per cent growth for the economy. She adds this appears to be as bad as it will get and that businesses could see light at the end of the tunnel. The study shows a net 7 per cent of companies expect their own trading activity to increase this year.
Persistently weak profitability means businesses remain cautious about expansion plans, particularly when it comes to investment in buildings, with 10 per cent of companies looking to reduce this type of investment in 2020. The outlook among businesses is more positive when it comes to hiring in the next quarter.
Hawke’s Bay was the only region where optimists outnumbered pessimists. Other provinces including Gisborne, Manawatu-Wanganui, the West Coast, Tasman and Blenheim were particularly downbeat, with more than 40 per cent of businesses in these regions expecting economic conditions to worsen.
Overall, the survey notes while costs continued to rise, businesses had found it easier to lift prices and expected to increase prices again in the first quarter of this year. Profitability, however, remained weak.
