Business confidence slumps
Business confidence at New Zealand companies plummeted after conflict breaking out in the Middle East led to supply chain disruptions and a surge in fuel prices.
The latest quarterly survey of business opinion by the New Zealand Institute of Economic Research (NZIER) shows business confidence tumbled in the March quarter.
A net one per cent of firms surveyed expect better general economic conditions over the coming months on a seasonally adjusted basis, which was down from the net 39 per cent anticipating improvements for the economy in the December quarter.
The study also shows trading activity of companies was flat on a seasonally adjusted basis, which is a slight improvement from the net three per cent reporting a decline in activity in their own business in the previous quarter.
Christina Leung, NZIER deputy chief executive, says: “Although firms’ domestic trading activity remained stable in the March quarter, the ongoing US-Israel war against Iran poses a risk to the fragile recovery that had been taking shape in the New Zealand economy late last year.
“The recent developments with the Strait of Hormuz shipping restrictions and fuel price surge have increased caution amongst firms, as reflected in firms’ hiring and investment intentions.”
A net nine per cent of firms reduced staff numbers in the March quarter and a net five per cent plan to reduce headcount in the next quarter.
Other findings include a net 12 per cent of companies planning to cut back on investment in buildings over the coming year, and a net nine per cent plan to reduce investment in plant and machinery.
Leung, pictured, adds the NZIER expects the general election in November will add another layer of uncertainty for businesses.
The latest survey was undertaken between March 6 and April 10, shortly after the US and Israel launched attacks on Iran.
A breakdown of responses over the survey period shows business sentiment deteriorated as the US-Israeli conflict with Iran escalated and the Strait of Hormuz, a vital shipping channel for global oil supplies, was closed.
Sentiment was mixed across the sectors in the March quarter, with building firms the most downbeat as a net 28 per cent expected a deterioration in the general economic outlook over the coming months.
Manufacturing was the most upbeat sector surveyed, with a net 34 per cent of manufacturers expecting short-term economic improvements.
“This optimism appears to have been supported in particular by stronger export demand in the March quarter, despite manufacturers reporting an easing in both cost and pricing pressures over the quarter, manufacturing sector profitability deteriorated,” notes Leung.
“The retail sector also remains hopeful about the outlook and demand over the coming months as both new orders and sales improved in the March quarter.
“The proportion of retailers who raised prices increased in the March quarter, but the profitability of the retail sector was still weak, given the intense cost pressures.”
The recent surge in fuel prices has increased costs for households and businesses, but costs and pricing indicators in the latest NZIER survey suggest inflation remains broadly contained in the New Zealand economy for now.
“The proportion of firms which faced higher costs remained steady at 37 per cent in the March quarter, while the proportion of firms that raised prices picked up in the quarter,” says Leung.
“Overall, these latest results on the NZIER cost and pricing indicators suggest that the risk of persistently high inflation resulting from the disruptions caused by the US-Israel war with Iran is modest, but there is a high degree of uncertainty about how long the war will affect gas and oil supply chains and prices.”
