Overview slows but NZ firms bold about future

By Brian Fallow

WELLINGTON - Business confidence has moderated somewhat in the New Zealand Institute of Economic research's latest survey following steep rises over the previous three quarters.

A net 30 per cent of respondents expected the general business situation to improve over the next six months, down from 47 per cent in April. Only 9 per cent expected it to deteriorate.

But while optimism about the general economic outlook had eased, the firms surveyed were still positive about their own prospects, reporting increases in sales and new orders.

Profitability was down, however, and with it hiring and investment intentions.

Manufacturers, in particular, were more optimistic about their own situation, with a sharp increase in expectations for both export and domestic sales.

The NZIER said capacity utilisation continued to rise and was back to the levels of late-1997.

It said a factor likely to be influencing expectations about exports was trading partner growth.

"The Australian and US economies continue to sow robust growth, while Asian countries, especially Korea, are beginning to recover."

The fall in the exchange rate since mid-May helped make New Zealand firms more competitive overseas, while the low and stable interest rates prevailing this year had benefited exporters and domestic firms alike.

The building sector reported increased sales but lower prices and profitability. More building forms expected to shed staff than hire them in the next three months.

Retail and wholesale merchants expected to sell more in New Zealand and buy more from overseas. Selling prices were still declining and costs rising, but firms were optimistic about future profitability.

Service firms reported increased output and anticipate further volume growth and a pick-up in prices next quarter. They intended to lift investment in plant and machinery, but not to increase staff numbers.

NZIER said the survey overall was consistent with a continuation of the recovery.

"In particular, the improved outlook for the manufacturing sector provides some reassurance that a sustained recovery in exports is finally under way."

When that fed through into increased employment - late this year or early next year - overall economic activity would be boosted. Until then, the recovery was likely to remain modest.