Weakness in the building sector leads pre-election plunge in business confidence

Tuesday, 3 October 2017

The construction sector has been booming, but Statistics New Zealand figures show the sector contracted in the past two quarters and the latest business survey shows profitability has dropped as companies struggle to pass on rising costs.

Confidence among New Zealand's businesses is dropping, led by the previously booming building sector.

The Quarterly Survey of Business Opinion (QSBO), published by the Institute of Economic Research showed a net 7 per cent of businesses are confident about the outlook for the economy in the coming year.

The drop marks a seasonally adjusted 10 point fall since the June quarter, and the lowest reading in the survey in 18 months.

Companies who responded to the survey also reported a drop in own activity expectations - how management expect their own businesses to perform - which dropped to a net 13 per cent positive in the September quarter, from 17 per cent in the June quarter.

The net scores reflect the difference between businesses which were generally positive and those generally negative, meaning the survey still shows that optimists outnumber pessimists.

All of the responses to the survey were received before the election on September 23.

NZIER principal economist Christina Leung said it was not unusual for confidence to drop in the lead-up to the election. In previous surveys taken immediately before elections since 1996, confidence dropped by an average of a net 19 per cent, so the latest fall was 'modest'.

However Leung said there were indicators which showed that there may be further softening for the previously booming building and construction sector, which has already contracted in the first two quarters of 2017 according to Statistics New Zealand.

General confidence in the building sector dropped from a net 18 per cent positive to just 3 per cent. The number of firms reporting a rise in new orders rose from a net 38 per cent positive in June, to a net zero in September.

Leung said building companies were also reporting a drop in profitability amid a struggle to pass on rising costs.

Regions generally reported a drop in confidence, aside from Northland where confidence rose 'sharply', Leung said.