Editorial: Firms’ fall in confidence sends a chill

Opinion

One survey of business confidence does not, in itself, make a crisis of confidence in the economy. Yet the results of the latest National Bank business outlook released this morning are ominous. Confidence among businesses polled by the bank has plummeted, with a net 48 per cent of firms expecting general business conditions to deteriorate over the next year. A month ago, a net one in five firms made that bleak prediction. Moreover, the drop in confidence is widespread and across all sectors.

It has become standard in this era of gravity-defying economic strength for Government politicians to adopt a Pollyanna-ish tone to signals of a downturn. And why not? Confidence has been in negative territory for nearly three years as many businesses expected something, anything, to go wrong. Often, when business confidence takes a hit, the politicians fix on an unusual quirk in these surveys which shows that while firms worry about the economic outlook, they remain upbeat about their own business and its year ahead. This has indeed been an oddity; a kind of "I'm all right Jack" attitude despite wider worries.

This time, that measure of firms' own activity expectations has dropped markedly. Where last month a net 30 per cent of firms were positive about their outlook now a net 15 per cent hold that view. That is, the bank says, the sixth-largest fall in the history of the survey. Confidence at this level is said to translate to annual economic growth of about 1 per cent in the year ahead.

It is enough to make an economist use the dreaded words "hard landing". The National Bank does just that, and its terminology will echo through hallways and lobbies at the Beehive with five months at most until a general election.

This is a Government which can do no wrong politically, according to public opinion polls. Bullets bounce off its breastplate: the NCEA affair, John Tamihere's debilitating honesty, police failures, Brash II, increased petrol taxes. That breastplate has a name and it is economic growth. Critics have predicted its imminent end for years. Yet through all the political upheavals that a multi-headed MMP opposition can produce, the resilience of this little economy has made the Clark Government unassailable.

Interestingly, the only times this Administration has stumbled have been when it came to believe just that. Before Dr Brash took the National leadership, and even after he started in that role, the Labour-Progressive coalition had a look of complacency which Orewa I removed with an unedifying slap.

In the past month or so, the Government has started to show signs of a lack of focus. Indeed, a visit to small businesses in Tauranga last week by the minister responsible, Rick Barker, produced a painful insight into the tactlessness of at least one member of the Executive. Mr Barker reportedly arrived late and spent time texting and talking on his mobile phone to the horror of attendees. Labour spurned the business sector once, in 2000, and had to work hard to win it back through a "winter of discontent".

Quite why business confidence should now drop so far, so fast is hard to explain. Interest rate rises, the high dollar and the new petrol tax provide part of the answer. Another, which the bank highlights, is the unions' move to force employers to pay a blanket 5 per cent pay rise. Led by Labour's biggest supporter, the engineers' union, this could well be the telling factor in the survey's findings on firms' investment and employment intentions.

The Government could have moved to contain its supporters' zeal here, but it has been silent. Opposition parties, so neutered by economic success, will wonder if this is the "camel's back" moment that they have been predicting.

For the public and the economy, though, gloom in the business sector is always unwelcome and sometimes self-fulfilling.