Business confidence slumps in March quarter

12.00pm

Business confidence slumped during the three months to March due to a combination of an interest rate rise, the soaring kiwi, the recent floods and shrinking profit margins, the New Zealand Institute for Economic Research (NZIER) said today.

The NZIER's Quarterly Survey of Business Opinion showed a net 29 per cent of firms now expected general business conditions to deteriorate over the next six months compared to a net 2 per cent of pessimists last quarter.

Today's figure is the first drop in confidence measured by the survey in the past year.

The institute said confidence had fallen across all sectors and all regions.

Factors cited for the fall in confidence included the Reserve Bank's interest rate hike in January, which the institute said turned optimism into pessimism in the building sector.

The institute also said the floods which hit the lower North Island in February had reversed previous optimism there.

In the retailing, wholesaling, and manufacturing sectors a "squeeze" in margins appeared to have dented confidence and the volatility of the local currency had continued to deepen exporter's pessimism.

The institute also said the survey's indicators of economic growth had eased with domestic trading activity indicators being consistent with gross domestic product (GDP) growth of about 0.2 per cent for the quarter suggesting an annual figure of 3.1 per cent for the year to March.

Firms' expectations for domestic trading activity in the quarter suggested annual growth would ease to about 2.3 per cent in the year to March 2005, slower than recent growth but not low, the institute said.

The institute said the outlook for the building sector had softened with a net 8 per cent of building firms expecting conditions to deteriorate over the next six months compared to a net 15 per cent of optimists last quarter.

- NZPA