ANZ warns the threat to activity 'is real' as business confidence stays in the doldrums

Thursday, 30 August 2018

The latest ANZ business outlook survey gives another downbeat view of the economy

Business confidence continues to slide, with more companies planning to cut back on investment in the coming year.

The latest ANZ business outlook survey for August showed headline business confidence - a which has become a highly contentious measure - dropped a further 5 points, with a net 50 per cent now expecting conditions to deteriorate.

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Own activity - a measure of what business figures expect to see from their own companies - was flat. The measure tends to be a better indication of economic growth.

But at a net 4 per cent expecting conditions to improve in the coming year, the measure suggests the economy growing at well below average.

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The New Zealand dollar dropped on the news, down around one third of a cent against the US dollar.

ANZ chief economist Sharon Zollner warned 'the threat to near-term activity is real'.

A net 5 per cent of companies said they expected to decrease investment in the coming year according to the survey. ANZ said it was rare for the reading to be negative.

A new survey show more businesses expected to invest less than last year in the next 12 months, with business confidence remaining at levels which suggest the economy is slowing.

'If this weakness is sustained, it will not bode well for [economic] growth heading into the end of the year,' Zollner said. There was 'downside risk' that the economy would grow at an annual rate of 3 per cent over the second half of 2018, she said.

Zollner said as scrutiny on business confidence surveys increased, the bank re-examined to links between the readings in the survey and what happened in the real economy. This led the bank to place greater emphasis on investment and employment intentions.

Prime Minister Jacinda Ardern (centre) with Air New Zealand chief executive Christopher Luxon and Finance Minister Grant Robertson, following a speech in Auckland which marked a charm offensive aimed at addressing business confidence. The mood of boardrooms is currently highly pessimistic, which some take as a sign of a slowdown while others claim should be dismissed as a poll by executives of the Labour-led Government.

'When you ask people what they expect, they tend to take a bit of a punt, and various biases can enter the answers,' Zollner said. 'But when you ask people what they're going to do, they generally follow through.'

ANZ published a survey showing historic investment intentions in its survey tended to show a strong link with economic growth in the following months, which on current trends point to a continuing slowdown.

Zollner admitted that in 2015, when dairy prices plunged, investment intentions suggested the economy would stall, however a booming housing market at the time kept growth robust.

'When firms tell you they're going to stop hiring and investment, you generally get a hole in employment and GDP [economic] growth.'

Westpac senior economist Michael Gordon said economic growth had slowed since late 2016, but 'the weight of evidence points to a shift to more modest growth rather than a slump'.

Westpac was expecting that economic growth would increase in 2019, boosted by stronger government spending.

'We suspect that a large part of the fall in business confidence reflects firms' discomfort with the new Government's policies, especially the planned changes to labour laws,' Gordon said.

'Prime Minister Ardern's speech this week was certainly aimed at alleviating these concerns, for instance by committing to no more than one or two 'fair pay' agreements during the Government's current term. We'll see whether this reassurance has had any effect in next month's survey.'

ASB senior economist Jane Turner said despite continued uncertainty over Government policy, the threat of a trade war and the impact from the Mycoplasma Bovis outbreak, she remained relatively upbeat view of the economic outlook driven by low interest rates, strong export prices and strong population growth.

'Our key area of concern is the continued slide in investment and employment intentions, which suggests pessimistic perceptions are threatening to directly weigh on economic activity over the second half of 2018,' Turner said.

'The longer business confidence remains low, the greater risk to the economic outlook.'

The survey of 369 businesses would have been largely completed before Tuesday's speech by Prime Minister Jacinda Ardern, which aimed to confront the issue of low confidence among New Zealand businesses.

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