NZ businesses pessimistic about economic outlook

A net 37.5 per cent of the 353 respondents to the ANZ business outlook expect the economy will slow over the coming year. Photo / Bloomberg

New Zealand firms remain pessimistic about the general economic outlook, with few seeing growth in their own activity and more than half expecting weaker earnings.

A net 37.5 per cent of the 353 respondents to the ANZ business outlook expect the economy will slow over the coming year, in line with the 38 per cent reading in March. There was a small improvement in expectations for firms' own activity with a net 7.1 per cent anticipating an improvement, compared to 6.3 per cent a month earlier.

While a net 46.6 per cent of firms anticipate higher costs, just 26.7 per cent plan to raise prices. A net 13 per cent expect profits to fall in the coming year, a slight improvement from the 14.4 per cent expecting weaker profits a month ago.

"The New Zealand economy is experiencing a soft patch that is proving reasonably long-lasting. GDP growth has steadily declined and we expect this to remain the case out to the middle of this year, based on leading indicators such as our ANZ Business Outlook survey and the ANZ Light Traffic Index," ANZ New Zealand chief economist Sharon Zollner said in a note.

The survey has been gloomier than its consumer confidence counterpart, in part because business confidence readings tend to be gloomier when there's a Labour-led government, irrespective of economic growth.

Businesses have cited regulatory uncertainty as a major cause for concern since the Labour-led coalition took office in late 2017. A major bugbear was removed this month when Prime Minister Jacinda Ardern said the Labour Party won't introduce a capital gains tax under her leadership.

The threat of such a tax encouraged the sale of local assets, with ASX-listed Integral Diagnostics today saying several high-quality assets had come to market purely on the prospect of capital being taxed. The Australian company spent $105 million in cash and scrip last year buying four New Zealand radiology clinics.

ANZ's Zollner said Ardern's call on the capital gains tax came too late for any meaningful impact on the latest business confidence survey. She will be watching for a bounce next month.

Residential building intentions deteriorated in the month with a net 20 per cent of firms expecting to cut investment, compared to 16 per cent predicting a fall in the March survey. Commercial construction intentions were more upbeat, with a net 15.8 per cent predicting to lift their investment, compared to 4.5 per cent anticipating a reduction a month earlier.

Hiring intentions improved to a net 4.3 per cent of respondents expecting to take on new staff, from 0.9 per cent in March, while investment intentions edged up to a net 1.5 per cent reading from 0.9 per cent.

A net 29.9 per cent of firms predict lower interest rates in the coming year, compared to a net 12.1 per cent expecting higher interest rates a month ago. However, a net 35.1 per cent anticipate access to credit will become more difficult.

ANZ economists expect the Reserve Bank will cut the 1.75 per cent official cash rate in August.