NZIER confidence survey heralds 'recovery in employment and investment'

Tuesday, 19 January 2021

Economists have been waiting for the results of NZIER’s confidence survey and inflation figures due out on Wednesday to provide more clues on whether the bounce back from Covid lockdowns will be sustained.

Business confidence continued to improve in the final quarter of last year, according to the New Zealand Institute of Economic Research’s quarterly survey of business opinion.

The researcher said a net 16 per cent of businesses owners expected a deterioration in general economic conditions over the coming months, on a seasonally-adjusted basis.

But that was an improvement on the 38 per cent who were expecting that in the previous quarter and “well below the 68 per cent of businesses feeling pessimistic in March 2020”.

When it came to firms’ own trading activity, only a net 1 per cent reported reduced demand on a seasonally-adjusted basis.

* Growing number of firms now looking to hire more staff

* Covid-19 casts long shadow over business confidence

“This measure suggests a rebound in annual GDP growth to around 2 per cent at the end of 2020 from the lockdown lows in mid-2020,” NZIER said.

The latest spending data from Stats NZ is not quite so encouraging.

Despite “weak profitability”, increased certainty about the economic outlook was encouraging businesses to hire and invest, it reported.

“A net 15 per cent of firms are planning to increase headcount in the next quarter, while a net 10 per cent of firms are looking to invest in plant and machinery,” it said.

“These results indicate a recovery in employment and business investment over 2021.”

Stats NZ separately reported on Tuesday that retail spending using bankcards rose by 3.5 per cent or $350 million in December, when compared with the same month in 2019, pre-Covid.

But Westpac said it believed the figure was down 1.1 per cent when compared with November, taking into account seasonal adjustments.

Westpac economist Michael Gordon said the figures suggested there had been “an easing back from the hectic post-Covid rebound in previous months”.

Consumer spending had risen strongly earlier in the year as the economy emerged from the Covid lockdown but the latest figures suggested a return to “more sustainable levels of spending”, he said.

“We may see some further softness in the next few months, due to the absence of international tourists over what would normally be the peak summer season.”

In its more upbeat report, NZIER warned that as demand for workers improves, labour shortages are becoming more acute.

“This is particularly the case for skilled labour, with a net 43 per cent reporting difficulty in finding skilled labour – close to levels seen in early 2020.”

The building sector remained the most optimistic of the sectors surveyed, NZIER said.

“With the pipeline of residential, non-residential and Government construction work increasing, building sector firms are hiring to keep up with demand.

“Although sentiment in the other sectors has improved, businesses are generally still cautious about general economic conditions ahead,” it said.

“Demand has improved in most of the other sectors, but firms are still finding it difficult to pass on rising costs by raising prices. This is weighing on firms’ profitability.”

ANZ economist Liz Kendall said the business mood appeared to be complex, with sentiment “fragile”.

“Demand is less of a concern in light of the strong bounce in activity, but capacity and cost pressures are a worry, and firms are still cautious about hiring.”

NZIER’s survey supported the bank’s recent forecast there would be only more cut in the Official Cash Rate to 0.1 per cent this year, she said.