New Zealand businesses increasingly confident, but less profitable

Tuesday, 4 October 2016

While confidence improved in most regions, including those exposed to agriculture, regions with strong tourism industries remained the most optimistic, NZIER said.

Confidence in New Zealand businesses continues to rise, even as prices are cut and profits fall.

The latest quarterly survey of business opinion (QSBO) from the Institute of Economic Research (NZIER) showed a net 26 per cent of businesses expect conditions to improve in the closing months of 2017. It is the most confident reading in the survey in more than three years.

But rising confidence comes as companies continue to struggle to pass on cost increases to customers.

A net 4 per cent of those companies surveyed reported that they had cut prices in the September quarter, while a net 1 per cent said profits had fallen over a three month period.

* Provincial New Zealand's confidence surged at the end of 2015**

The net figures represent the difference between the companies said conditions had improved in a certain area as opposed to those who reported a deterioration.

Business bosses were even more confident about the performance of their own companies, with a net 32 per cent anticipating their own activity to improve in the coming months, up from 22 per cent three months ago.

Hiring intentions also jumped to the highest level in more than 40 years, NZIER senior economist Christina Leung said.

Leung said the figures implied economic growth could pick up to 4.5 per cent, however NZIER believed growth would be 3.5 per cent in the year to September 30, and average around 3 per cent over the next five years.

A net 27 per cent of companies surveyed anticipated increasing headcount in the next three months. This contrasted with a fall in new employment in recent months, at just net 4 per cent increasing staff, well below what the survey for the June quarter signalled.

ASB senior economist Jane Turner said the survey showed the economy was likely to continue its strong growth in the second half of 2016, however the message elsewhere was mixed.

'On one hand, the labour market is clearly tightening,' Turner said.

'On the other, firms remain unable to pass on cost increases and profitability growth remains low – which could impact employment and investment plans going forward.'

The weak outlook for pricing has NZIER tipping that the Reserve Bank will lower the official cash rate in November, and again around the middle of 2017, to a low of 1.50 per cent.