Feel-good economic factor waning

By Richard Braddell

WELLINGTON - Sliding business and consumer confidence is at odds with the best news on the international outlook in two years, said the National Bank's chief economist, Brendan O'Donovan.

The latest National Bank business confidence survey has again reported a sharp fall in confidence, with the proportion of optimistic respondents down from 46 per cent in May to 29 per cent.

Optimists are now half the number in February, a result that reflects falling consumer confidence reported earlier this week in the WestpacTrust McDermott Miller survey.

While both surveys are still strongly positive, Mr O'Donovan said the downward trend was disturbing, particularly since international economies had begun to look sharply positive in the last two months and they would set the scene for a more durable New Zealand performance.

While Japan's strong first quarter growth looked unconvincing, Mr O'Donovan said Asia was poised for a rapid recovery from last year's slump and Europe was looking more buoyant with low interest rates stimulating domestic demand.

In part, the drop could be a simple correction from excessive exuberance at the start of the year.

But the villain would appear to be higher long-term interest rates, driven by the US compensating for unusually low rates last year that were aimed at "saving the world" during various financial crises.

"The feel-good factor is waning for both businesses and consumers."