Forecast turns to gloom

By BRIAN FALLOW economics editor

Pessimists are to the fore in the National Bank's latest survey of business confidence.

A net 8 per cent of respondents expect the general business situation to worsen over the next 12 months, compared to evenly balanced sentiment last month.

It was the worst December result in the 15 years of the survey, said the bank's chief economist, Dr John McDermott.

Not only did general sentiment worsen, so did firms' views of their own outlook, an indicator which is less volatile and a better pointer to economic growth.

The own-activity measure fell from a net 31 per cent positive in November to a net 24 per cent positive. The decline was most marked among retailers, but affected builders and the agricultural and service sectors as well.

McDermott said there was some understanding among retailers that the robust growth in retail sales they had enjoyed had outstripped growth in incomes.

It was driven by credit and to that extent was unsustainable. Credit card billings in October were 13 per cent up on October last year.

"In the New Year, when the bills have to be paid, sales will drop sharply. With farm incomes under pressure from lower commodity prices and a higher currency, the fall will be most acute in rural regions."

Manufacturers' responses present a mixed picture. Their general confidence is down (from a net 2 per cent positive to 8 per cent negative), but their own activity and export expectations are steady, and their investment and hiring intentions are stronger than they were last month.

Smaller manufacturers, especially those who rely on the Australian market, were citing the exchange rate as a concern, McDermott said.

But the stronger dollar has also made imported plant and Machinery cheaper and imports of capital goods have been increasing for the past five months.

McDermott attributed much of the decline in confidence to a general grumpiness about Government policy.

Pending legislation on local government, health and safety in employment, four weeks' annual leave and marine reserves had spooked the business community, he said.

The ratification of the Kyoto Protocol was seen as undermining New Zealand's competitive position, while exporters and tourist firms were concerned about the future of the airline industry.

It was inevitable that sentiment would be affected when Air New Zealand painted a dark picture of its future without the proposed alliance with Qantas.

McDermott did not think much of the deterioration in confidence can be put down to the possibility of war in the Middle East.