Business gloom starts to lift

Businesses are still felling downbeat but are also starting to see light at the end of the tunnel, according to a new survey by the New Zealand Institute of Economic Research (NZIER).

On a seasonally adjusted basis, a net 42 per cent of businesses surveyed for the NZIER’s Quarterly Survey of Business Opinion expect deterioration in general economic conditions over the coming months.

However, the pessimistic response for the September quarter was a decrease from the 62 per cent of companies feeling the same way in the June quarter.

The retail sector is the most downbeat of those surveyed with a net 61 per cent of retailers expecting a worsening in general economic conditions over the coming months. Both demand and staff numbers have reduced. 

Christina Leung, NZIER’s principal economist, says the sector still faces intense cost pressures, with 95 per cent of retailers experiencing higher costs in the September quarter. Meanwhile, only 70 per cent were able to increase their prices.

Other key findings in the latest study include a net three per cent reporting an increase in their trading activity over the September quarter. 

Leung, pictured, adds demand looks to be stabilising at a lower level, suggesting a period of weaker growth in the New Zealand economy ahead.

There are signs of easing capacity pressures in the economy after a net nine per cent of businesses cited capacity as the primary constraint on their business – compared with 13 per cent in the previous quarter. 

Labour remains the top primary constraint and the proportion of businesses reporting it as their main problem has increased from 37 per cent to 43 per cent. 

Leung notes shortages for skilled and unskilled labour was easing from the historically high levels of the past year. She says this suggests wage growth is likely to ease over the coming year, as the reopening of international borders allows more firms to employ workers from overseas.

“These developments are flowing through to moderation in inflation pressures. In the September quarter, the proportions of businesses reporting higher costs and raising prices both fell,” she explains. 

“Although the economic outlook is highly uncertain, these results support our view that annual CPI inflation will ease over the coming year.”

Businesses are still cautious about investing in buildings and plant and machinery for the coming year, with a net 17 per cent and a net two per cent intending to reduce investment in these areas, respectively.