Business confidence continues to slide, as demand and profits fall

Tuesday, 2 October 2018

Business confidence has continued to fall, with companies reporting a decline in profits and demand in recent months.

The quarterly survey of business of business opinion (QSBO) showed that a net 28 per cent of businesses were downbeat about the general economy, a seven point fall since June.

Although the general business confidence measure is highly influenced by a change in Government, the survey also showed another fall in domestic trading, which tends to be a much more accurate guide to how the economy will perform.

As many businesses reported a fall in trading over the past three months as the number reporting an increase, with a net 0.4 per cent positive score, the lowest by that measure since September 2012.

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Undertaken by the Institute of Economic Research since 1961, the QSBO is regarded as the leading survey of its type.

While the key measures in the latest survey are more upbeat than the monthly ANZ business outlook,  the September QSBO shows a continued decline in most measures compared to June.

Christina Leung, principal economist at the Institute of Economic Research, said irrespective of who was in Government, the own activity measure tended to be a good guide to economic growth.

The survey suggested economic growth would fall to 2 per cent in the year to September 30, Leung said.

Profitability continued to drop, with a net 23 per cent reporting a fall in profits in the past quarter.

Business owners indicated they were less likely to take on staff or invest in new plant or buildings.

'We're likely to see this continue if profitability continues to decline,' Leung said.

Manufacturing overtook retail as the most downbeat sector.

ASB said it would likely cut back on how much it expected the economy to grow in the second half of 2018 on the back on the QSBO.

'The…survey contained some very weak details which confirms that economic activity has likely decelerated heading into the second half of 2018,' ASB senior economist Jane Turner said. There was 'some risk of a sharp slowdown in the labour market' over the September quarter, Turner added.