Business confidence at lowest level since 2009: NZIER

Tuesday, 1 October 2019

There has been a net 35 per cent drop in business confidence in the September quarter, as trading activity declines, new data shows.

The New Zealand Institute for Economic Research (NZIER) released the results of its Quarterly Survey of Business Opinion (QSBO) on Tuesday, showing pessimism has struck the business community in the September quarter.

The low levels of confidence were the weakest since March 2009, it said.

Trading activity had declined, with net 11 per cent of businesses reporting a fall in demand over the last quarter, suggesting Gross Domestic Product (GDP) would ease below 1 per cent.

The ABCs of the OCR.

* A further fall in business confidence points to economic growth dropping

* Property investors, not first home buyers, snap up affordable homes: NZIER**

The survey showed manufacturing was the most downbeat sector surveyed. Profitability had been weighed down by a weakening in both domestic and export demand.

New Zealand Institute of Economic Research principal economist Christina Leung says firms are downbeat across all regions.

The US-China trade war had created uncertainty which is affecting demand globally. The institute expected the trade war would continue to put pressure on the manufacturing sector over the next year.

Construction could also slow as firms lowered their output expectations, with a reduced pipeline of both residential and commercial architect activity, NZIER reported.

Firms reported they intended to reduce investment in buildings over the coming year.

Retailers had struggled to pass on rising costs to consumers, affecting profitability in the sector, the weakest since September 2009.

Cost pressures and weak pricing were affecting most sectors, the institute said, leading to caution around hiring and investing.

Investment in buildings is slowing, NZIER said.

A net 10 per cent of firms had cut staff numbers, while investment in buildings, plants and machinery had also reached the lowest levels since September 2009.

All regions were experiencing pessimism, but provinces were particularly affected.

More than half of businesses surveyed in the West Coast and Nelson expected a deterioration of economic conditions, the survey showed.

Businesses were down in the dumps and bright spots were becoming fewer and further between, ANZ said after the QSBO release.

On Monday new data released by ANZ showed half of all businesses expected conditions to get worse over the next year.

The bank's September Business Outlook Survey said business confidence had fallen by two points, to the lowest level since April 2008, and that companies' expectations for their own performance had also fallen by one point for the fourth consecutive time.

That's despite the official cash rate being left at a record low of 1 per cent at the most recent review.

Chief economist Sharon Zollner said most indicators in the September survey had fallen.

The ANZ-Roy Morgan Consumer Confidence Index also fell in September by four points to 114, the lowest in four years.

Kiwibank's chief economist Jarrod Kerr said the protracted, and worsening, malaise amongst business was likely to induce another Reserve Bank response and it now expected another interest rate cut.

Business confidence was crumbling, he said.

'Businesses have highlighted weak demand, capacity constraints, (Government) policy uncertainty, and poor pricing power as reasons to worry about profitability, reduce investment intentions, and lower inflation expectations.'

ASB was also now predicting an interest rate cut.