Business confidence slumps on construction sector woes

Times are getting tougher in the construction sector. Photo / File

Headline business confidence has slumped in the latest ANZ Business Outlook as global economic slowdown concerns add to domestic worries about tougher credit conditions and lower profits.

Confidence fell six points to net -44 per cent in the July survey.

The more important indicator of real economic performance - firms' views of their own activity - fell three points to +5 per cent, the lowest read since August last year.

Other activity indicators were also weaker.

"Most ANZ Business Outlook activity indicators fell in July to weak levels. The main theme this month was a sharp deterioration in sentiment in the construction sector across a wide range of indicators," said ANZ senior economist, Miles Workman.

"Residential construction intentions fell back into negative territory. Employment intentions and profitability expectations for the construction sector plummeted to the lowest since 2009."

Employment intentions fell from 0 to a net 6 per cent of firms expecting to cut jobs, he said.

Investment intentions fell three points to be flat.

Capacity utilisation, which has one of the most reliable correlations in the survey to annual GDP growth, fell five points to 0, its lowest read since 2009.

"The outlook for the economy is deteriorating," Workman said.

"Despite generally good commodity prices and interest rates at record lows, the headwinds of a global slowdown and credit and cost constraints appear to be winning out.

With the inflation outlook not consistent with the target midpoint we expect two more OCR cuts this year, helping the economy to find its feet once more."

Profit expectations fell three points to a net 16 per cent expecting profitability to decline.

A net 42 per cent of firms expect it to be tougher to get credit, down 2 points to a fresh record low since the series began in 2009.

"Construction indicators look a bit worse for wear," Workman said.

A net 33 per cent of firms in the construction sector are intending to cut jobs.

The construction sector currently employs 240,000 people, some 9 per cent of total employment, making it a meaningful driver of broader employment trends.

"The outlook for the broader labour market is also deteriorating: although the construction sector is far more negative than the rest, employment intentions are now negative in every sector, " he said. "The services sector was the last domino to fall; the net -1 per cent this month is the lowest since late 2009."