Business confidence better, but still negative

10.31 am

New Zealand business confidence improved during the December quarter but pessimists still outweighed optimists, according to the latest survey from the Institute of Economic Research (NZIER) published today.

Following the biggest net fall in confidence for 30 years for the previous quarter (28 per cent), a net 10 per cent of firms expected business conditions to deteriorate.

Removing regular seasonal variation, a net 26 per cent of firms expected business conditions to deteriorate compared with 44 per cent in the third quarter.

NZIER research economist Doug Steel said the level of negativity was slightly surprising, given that the previous survey was conducted within a week of the September 11 terrorist attacks in the United States. Continued net pessimism revealed there were underlying concerns unrelated to the attacks.

Pessimism was likely to continue for at least the first quarter of 2002. The rise in confidence was recorded across all sectors, with the largest improvement in the manufacturing sector, the survey showed.

However, all sectors remained pessimistic with the service sector the least optimistic.

In keeping with quarterly trends, firms continued to lack confidence in the general business situation further ahead despite reporting increases in their own output and sales.

The NZIER said the lack of confidence appeared to stem from expectations of an impact on general business conditions from the slowing world economy. That reflected the reported easing in export growth during the quarter experienced by New Zealand firms.

As a result, businesses were currently in a holding pattern and remained cautious about expanding capacity by hiring more staff or additional investment, he said.

The retail and wholesale sectors were the least pessimistic about general business conditions in the next six months.

However, businesses expected domestic trading activity to lift in the next three months.

Manufacturers, builders, wholesalers and retailers experienced increases in new orders during the December quarter, and all expected further increases in the next three months.

Firms in all sectors reported increases in costs which dampened confidence, while price increases limited the deterioration in profitability for the December quarter.

Difficulties in finding skilled labour continued, although that had eased compared with previous quarters partly due to a turnaround in net migration from the middle of last year. The institute said that easing employment growth and an expanding labour force, coupled with net inward migration, would ease the recent upward pressure on wages. However, dampened household spending as a result would hinder economic growth in the short term.

Accompanying the business survey, the NZIER also examined the impact of the Employment Relations Act one year after its introduction. The survey found that there has been little change in the number of employees on contracts prior to the ERA, with individual contracts remaining the most popular form of employment agreement.

However, firms reported an increase in the proportion of unionised workers. Average wages have increased, along with law compliance costs and time spent on negotiating agreements.

Overall, 56 per cent of respondents said the ERA had had no impact on their organisations' performance, while 28 per cent said the act's impact had been negative.

The Reserve Bank of New Zealand had seen the NZIER's survey prior to leaving the Official Cash Rate unchanged at 4.75 per cent yesterday.

- NZPA