Business confidence stays low in first 2018 survey

ANZ Bank New Zealand chief economist Sharon Zollner. Photo / File

The first business confidence survey of 2018 shows local firms are still feeling negative, despite all five sectors lifting in February and overall confidence improving.

The ANZ Business Outlook, which does not run in January, reported a net 19 percent of businesses were pessimistic about the year ahead, versus 38 per cent in December.

Confidence dropped to an eight-year low in November on political uncertainty when the new Labour government took office. A net 20 per cent of companies see their own activity expanding in the latest survey, compared to 16 per cent in December, still below the historical average of 28.

"A slower housing market, a small dip in net migration, difficulty finding credit and already-stretched construction and tourism sectors are making acceleration hard work from here," said ANZ Bank New Zealand chief economist Sharon Zollner. "But strong terms of trade and a positive outlook for wage growth are providing a push."

The survey showed a net 1 per cent of firms expect profit to fall in the year ahead, versus net 3.2 per cent in December. Employment intentions rose to a net 5.3 per cent from a net 2.5 per cent in the prior month but remain well off the July peak of 26 per cent.

Across the five sub-sectors, all remained negative. Retail was the least negative, with a net 3.7 per cent of respondents expecting business conditions to deteriorate, while agriculture was the most negative, with a net 36.8 per cent expecting worse conditions to come. Manufacturing was net -25 per cent, construction net -11.6 per cent, and services net -18.8 per cent.

ANZ's Zollner said there are few signs of inflation pressure developing in the latest survey, with expectations down to 2.07 per cent from 2.25 per cent and pricing intentions falling to 25.1 per cent from 29.1 per cent in December. The bank is conservative in its productivity growth assumptions and sees downside risk to growth forecasts from Treasury and the Reserve Bank.

"Growing above trend is not typical of an economy so far into the business cycle," she said.

"That said, the rebound in business confidence is consistent with our belief that while no longer at top speed, this business cycle has legs yet. In particular, incomes are set to be supported by the strong terms of trade and higher wage growth."

Interest rates were expected to rise by a net 43.9 per cent of respondents, from net 49 percent in December.