1 Sep 2015

Business confidence drops again

9:26 am on 1 September 2015

Business confidence has continued to tumble, hitting fresh six year lows.

New Zealand money.

Photo: RNZ / Alexander Robertson

The ANZ Bank's business outlook survey for August found pessimists outnumber optimists in the month, with a net 29 percent of respondents expecting the economy to get worse over the coming year, compared with a net 15 percent expecting a deterioration in the previous month.

Firms remained upbeat about their own prospects, though down from a net 12 percent to 7 percent, which is well below the long term average of 27 percent. Profit expectations and investment and hiring intentions declined.

Agriculture fell to a record low, with a net 28 percent of farmers expecting their prospects to decline.

The slip in business confidence followed a fall the previous month.

ANZ Bank chief economist Cameron Bagrie said it indicated growth had slowed to 1.5 percent, close to "stall speed".

"Confidence is critical to keeping the economic wheels turning," said Mr Bagrie. "If firms don't have confidence, they don't invest, they don't take a punt on that new employee and activity grinds to a halt."

Mr Bagrie believes growth is closer to 2 percent, underpinned by immigration, construction, and tourism, while the lower dollar and expectation of further interest rate cuts would help prop up activity. He was more concerned about China's slowing growth and prolonged weakness in Europe and Japan.

Mr Bagrie told Morning Report there was a real danger of talking the country into a slump, when there are still significant growth areas.

Chief economist for BERL, Ganesh Nana, told the programme lower confidence locally comes with the rest of the world's markets falling apart.

Treasury forecast

Meanwhile, Treasury's latest Monthly Economic Indicators predict the economy to have grown by 2 percent in the year to December due to cooling domestic demand.

Treasury's prediction is that the economy will have expanded 0.6 percent in the June quarter, lower than the 0.7 percent it forecast in May's budget.

It says weaker retail spending amid declining jobs growth points to easing private consumption.

However, the government's economic forecaster says a buoyant housing market, immigration gains and falling dollar are expected to support growth.

And, in separate data, inflation remains tame, with the number of firms intending to put up prices falling to the lowest level in nearly 3 years.