NZ business confidence turns more pessimistic

Business confidence has turned more negative, according to the latest Quarterly Survey of Business Opinion (QSBO) published by the New Zealand Institute of Economic Research (NZIER) today.

A net 28 per cent of firms now expect business conditions to deteriorate over the next six months against 6 per cent in the last survey in December.

Through 2004 there was a trend of easing pessimism, but that has now been reversed.

Firms' expectations about their own performance over the next three months, however, remain positive. Their profitability weakened over the last quarter, particularly in the South Island.

Plant and machinery investment intentions remain historically high despite the weaker profit trend and expectations.

Cost pressures are widespread and inflationary expectations are strong. Firms report an increase in pricing intentions.

Capacity utilisation eased a little but remained historically high and a net 60 per cent of firms reported difficulties in finding skilled labour.

The labour market outlook was mixed and there has been a decline in hiring intentions.

Firms are reluctant to go into the market in the face of a very, very tight labour market, said NZIER economist Grant Andrews.

He said the data was unlikely to make the Reserve Bank more comfortable about inflation. However, he said there was a long lag on the effect of raising interest rates and was reluctant to say whether the bank should raise rates again.

Business confidence fell across all sector groups with building material suppliers the most pessimistic with a net 52 per cent expecting a downturn. Financial services firms were the least pessimistic at a net 18 per cent.

The South Island with a net 47 per cent pessimism rate was far more pessimistic than the North. The upper North Island rated at 23 per cent and the Lower North Island at 24 per cent.

Despite the gloomy overview, firms on a seasonal basis remain positive to the tune of a net 17 per cent, two points down from March.

Demand in the manufacturing sector remains strong despite the strengthening of the New Zealand dollar. A net 7 per cent of manufacturing exports reported an increase in their export sales and a net 8 per cent expect exports to increase.

- NZPA