ANZ says NZ economy 'delicately placed' as business sentiment hits 10-year low

Tuesday, 31 July 2018

A new business confidence surveys show a majority of retailers expect their activity to decline over the coming year, despite consumer confidence remaining solid.

Business confidence continues to slide, with ANZ saying the corporate sector is 'in a funk'.

The ANZ business outlook for July showed a net 45 per cent of businesses were pessimistic about the general outlook for the economy, the most downbeat reading in the monthly survey since May 2008, when New Zealand was in recession and the global financial crisis was building.

The number of businesses expecting an improvement in their own activity was more positive in the survey, but has dropped to a net 4 per cent which are positive, the lowest since May 2009.

ANZ chief economist Sharon Zollner said the survey 'paints an unhappy picture' and it was difficult to take a glass half full approach to it.

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Business confidence has been generally sliding since shortly before the 2017 general election, with economists blaming a range of issues, from global trade tensions to uncertainty about the policy direction of the new Government.

There is some evidence that the surveys tend to reflect political bias, with business confidence tending to be lower under Labour Governments, irrespective of economic growth.

Finance Minister Grant Robertson said the latest figures were not a surprise given the recent trend and concerns about the global economy.

'We continue to believe that the fundamentals of the economy are sound. We've still got relatively low unemployment, we've got a surplus, debt tracking down,' Robertson said.

'So we'll continue to work with the business community on issues that are concerning them, but New Zealand remains a good place to do business.'

National leader Simon Bridges however blamed the fall squarely on the Government.

'The fact that these numbers are at their worst levels in 10 years show just how worried businesses are and the Government must take responsibility as there is no other driver of this change,' Bridges said, blaming labour law reform, uncertainty around immigration settings, restrictions on overseas investment and changes to the oil and gas sector.

'Winston Peters and Jacinda Ardern need to take this incredibly seriously and we need to have a plan and understand what they are going to do to turn this around.'

The recent plunge in business confidence has had little impact on the real economy so far, there is a risk that pessimism may see companies cut back on new investment or hiring, which could cause a downturn, even though consumer confidence remains solid.

'This economy feels increasingly late in the [economic] cycle,' Zollner said, predicting that Government spending and export income would support economic growth.

'However, sustained low business confidence increases the risk that firms will delay investment and hiring decisions, in what could become something of a self-fulfilling prophecy.'

Retailers were the most downbeat in the survey, despite other surveys showing that consumer confidence has remained steady and positive in recent months.

Zollner said the disconnect between retailers and their customers could come from concerns about high household debt, a shift to online shopping and higher anticipated costs, including from hikes in the minimum wage.

'The New Zealand economy is delicately placed. Fiscal stimulus and the high terms of trade will provide impetus to growth, and the external environment remains favourable. But with businesses in a funk, it's fair to say that the road ahead is looking less assured, and risks of a stall have increased.'

Westpac senior economist Michael Gordon said despite the political slant of confidence surveys, the change in mood 'has been consistent with a broader range of indicators, which show that the New Zealand economy lost some momentum over the first half of this year'.

Gordon said economic activity was expected to pick up toward the end of 2018 as increased Government spending kicked in.

'However, the ongoing slide in business confidence does raise some concerns about the underlying strength of private sector activity.'