Confidence falls with most companies warning of falling profit and investment plans

Tuesday, 3 July 2018

The quarterly survey of business opinion found that retailers are currently more pessimistic than at any time since the global financial crisis.

Business confidence continues to fall, with the first signs that pessimism causing businesses to cut back investment plans.

The quarterly survey of business opinion (QSBO), New Zealand's leading survey of its type, found that a net 19 per cent of businesses expect the economy to deteriorate in the coming year. Three months ago the survey found a net 10 per cent were pessimistic.

The scores in the survey subtract the number of respondents which are negative from those which are positive, meaning pessimists currently strongly outnumber optimists.

Christina Leung, principal economist at the Institute of Economic Research (NZIER), said this was the weakest outlook since March 2011.

Companies were more optimistic about their own activity in the recent months and for the coming year - a better guide to how the economy will fare than general sentiment.

But here too, the mood is becoming more downbeat. A net 7 per cent of business reported demand increased in the June quarter, down from 15 per cent in the March survey. The June measure of experienced activity was the weakest in five years.

A net 16 per cent of businesses said profits declined in the past three months, while a net 12 per cent expect profits to decline in the next three months.

Leung said the profitability measure 'is starting to impact on future plans for businesses,' with investment intentions also weakening. The survey suggested 'downside risks' to economic growth expectations, Leung said.

NZIER said a net 4 per cent of business expected to decrease investment in new buildings. A net 2 per cent said they would increase investment in plant and machinery in the coming year, however this was a sharp decline on March.

ASB noted that employment intentions - a guide to how many companies expect to take on new staff - remained positive, with companies taking on more staff in recent months.

'This creates some uncertainty around how business will respond to perceptions of weak economic activity, and in turn how much business decisions themselves drive an economic slowdown,' ASB senior economist Jane Turner said.

'As we have been saying for some time, NZ economic fundamentals remain supportive of above trend growth.'

National finance spokeswoman Amy Adams said as well as weakening business confidence, recent economic growth figures showed that per person, the economy was not expanding, a measure Finance Minister Grant Robertson focused on while in Opposition.

'Perception is reality,' Adams told reporters in Parliament.

'The economy only grows if businesses feel like this is the right time to invest, to hire staff, to buy that new piece machinery, to expand into a new market. So if businesses are feeling that things are getting worse, and all the indicators are telling them that things are slowing down, that becomes the future of our economy.'

ANZ senior economist Liz Kendall said the survey showed signs that weak confidence was starting to feed into actual decision-making among businesses.

'How businesses respond to the challenges they are reporting will have important implications for the economic outlook from here,' Kendall said.

'It is fair to say that downside risks have increased. '

The retail sector is now in its most pessimistic state since 2009, when the New Zealand economy was in recession.

All regions were broadly downbeat, excluding the West Coast, with Taranaki and Marlborough especially pessimistic.