Confidence slides further

By BRIAN FALLOW economics editor

Business confidence continues to slide, with the National Bank's monthly survey recording its fifth fall in a row.

A net 31 per cent of respondents expect the general business climate to deteriorate in the next year, compared with 20 per cent net in July.

Firms' view of their own outlook has also worsened sharply, to its lowest reading since October 2000, when confidence was struggling to recover from a winter of discontent.

National Bank chief economist Dr John McDermott puts the pessimism down largely to international factors.

Sentiment has weakened globally as it becomes clear that the United States recession was worse than initially thought and as revelations of corporate malfeasance knock the stuffing out of investor confidence.

Even so, firms' export expectations have not deteriorated in the latest survey overall, largely as a result of manufacturers taking a rosier view.

Manufacturers' profit expectations and hiring intentions have also improved. That reflected a sense of relief as the New Zealand dollar retraced some of its rapid earlier rise towards US50c, McDermott said.

Manufacturers apart, the survey results have a dismal consistency. Hiring and investment intentions are weaker, as are profit expectations.

Sentiment in the construction sector has worsened markedly, builders' own-activity outlook falling from a net 8 per cent positive to a net 14 per cent negative.

"This is puzzling given that the fundamentals look reasonably good. We are looking at interest rates being relatively flat for a while, while net immigration is increasing demand."

The survey pointed to a slowdown in the economy but not an all-out rout, McDermott said.

Other indicators suggested the economy was at a turning point. "New car registrations and house sales have eased after a stunning start to the year. The trend in retail sales has softened, as have job advertisements and visitor arrivals."

Dairy prices, a key barometer for the rural sector, have plummeted.

McDermott expects growth to run between 2 and 2.5 per cent over the year ahead.

But it will feel worse because it comes after above-par growth. "It's like coming off a motorway into a rural town with a 50km/h speed limit."