Slump in business confidence ‘screams rate cuts’, says BNZ

Tuesday, 2 July 2024

Economists are voicing alarm over a slump in business confidence reported by the New Zealand Institute of Economic Research.

The think-tank’s Quarterly Survey of Business Opinion found a net 35% of firms were expecting economic conditions to deteriorate in the coming months.

A net 28% reported a decline in their own business’ activity in the June quarter, up from 24% reporting a decline in the previous quarter.

The institute said the results suggested the potential for “a continued slowing in the New Zealand economy over the coming year on the back of higher interest rates and heightened uncertainty”.

The construction and manufacturing sectors were particularly downbeat.

The survey comes on the back of regular monthly surveys from ANZ last week that also suggested the post-election bubble in business confidence had completely burst and that consumer confidence was, in the bank’s words, “subterranean”.

Kiwibank said the latest business confidence survey showed the Reserve Bank needed to lower interest rates to avoid “economic scarring” — a way of describing longer term damage to the economy.

The “clear deterioration in expectations” was not good and businesses’ signals about their intentions in the survey pointed to “a continuation of the weak-to-miserable economic data”, it said.

BNZ research head Stephen Toplis said the survey result “screams cut rates sooner rather than later”.

“A net 10% of employers say they will be reducing staff. Excluding the Covid outbreak, this was the weakest reading since June 2009,” he said.

Prime Minister Christopher Luxon appeared to go out of his way during his post-Cabinet briefing on Monday to attempt to inject some more positive sentiment.

“I want to say to everybody, I know it's tough now, but we actually have a fantastic future ahead of us in this country,” he said.

That would involve investing in “world class education” and putting modern infrastructure in place, he said.

ANZ senior economist Miles Workman said the New Zealand Institute of Economic Research’s survey provided “further confirmation that monetary tightening has done what it says on the tin”.

But progress reducing inflation was coming with “a pretty hefty price tag”, he said.

“Business confidence is dire and activity measures are very weak.”

Workman saw heightened risk that ANZ’s forecast of a 0.1% drop in GDP in the June quarter might underestimate the drop in economic activity from the previous quarter.