2 Jul 2019

Business confidence hits 10-year low - NZIER

1:01 pm on 2 July 2019

Business confidence has fallen to its lowest level in a decade amid softer demand at home and a gloomier international outlook.

Generic business invoice shot

Photo: 123RF

The Institute of Economic Research's quarterly survey shows a net 31 percent pessimism level in the outlook for the broad economy.

Firms have also become more negative about their own outlook with sentiment dropping to its lowest level since March 2009.

The Institute's principal economist Christina Leung says businesses are reporting a further squeeze on profits, struggling to pass on higher costs, and were reluctant to hire staff.

"These measures suggest a softening in annual GDP (gross domestic product) growth to below 2 per cent over the second half of 2019," she said.

The most pessimistic sector was manufacturing, where confidence fell to the lowest level since the end of 2008, with demand and exports softening, and margins being squeezed as they continued to struggle to pass on higher costs.

"The deterioration in the global outlook is starting to impact export demand for manufacturers," Ms Leung said.

All the other sectors surveyed were pessimistic, but while retailers were looking to a lift in profits, sales were reported to be softer, and other sectors were signalling they plan to keep investing.

Ms Leung said businesses appeared to have cut the fat and were running lean to cope with the tougher climate, such as not hiring new staff, making sure they do not overproduce, and minimising spare capacity.

She said the Reserve Bank was likely to cut interest rates again, probably in August, to help stimulate the economy. The RBNZ cut its benchmark rate in May to a record low 1.5 percent and has signalled it will likely cut further.

Ms Leung said there were doubts that a further cut in rates will do much for the economy, but the central bank would likely feel it had little choice because other economies are cutting rates and if New Zealand did not follow suit it will lead to a rise in the value of the currency.

However, other economist took the NZIER survey as further proof that more rate cuts were needed.

"With economic momentum continuing to slow, we now expect the RBNZ will cut the OCR twice more, in August and November, bringing the Official Cash Rate (OCR) to 1 pct," ASB senior economist Jane Turner said.