Confidence drop largest since global crisis

The Government estimates the rebuild will cost $15 billion. Photo / Dean Purcell

New Zealand business confidence slumped in March by the most since the onset of the global financial crisis in 2008 after a magnitude 6.3 earthquake that wrecked buildings in Christchurch city in February.

A net 14.7 per cent of companies expect their sales and profits will rise over the next 12 months, down from 36.6 per cent expecting an increase in February, according to a survey by ANZ National Bank released yesterday.

The net figure subtracts the number of pessimists from the number of optimists.

The decline is the biggest since October 2008, according to Bloomberg data.

Falling business confidence adds to signs that economic growth will be weak this year after the February 22 earthquake, which stalled output from the nation's second-biggest city.

Central bank Governor Alan Bollard on March 10 slashed his growth forecasts and cut the official cash rate to a record 2.5 per cent to bolster sentiment.

"Facing exceptional times we should hardly be surprised to see exceptional movements in confidence," ANZ National chief economist Cameron Bagrie said.

ANZ's composite growth indicator suggests the economy will expand 2 per cent over the next 12 months, Bagrie said.

Bollard forecast the economy will expand 1.3 per cent this year, down from the 2.7 per cent pace he projected in December. The cost of damage from the earthquake will be about $15 billion, according to Government estimates.

Ten of 14 economists surveyed on March 10 by Bloomberg News expect borrowing costs will be unchanged until the first quarter of 2012. Bollard said he will start to raise interest rates when rebuilding of Christchurch gets under way.

A net 5.8 per cent of companies expect to increase investment in the next year, down from 9 per cent in February, yesterday's survey showed.

A net 3.1 per cent intend to reduce employment and those expecting higher profits exactly offset those expecting earnings declines.

The measure of overall confidence in the economy sank, with 8.7 per cent of the 457 companies surveyed expecting the economy to deteriorate over the next year, from 34.5 per cent who expected an improvement in February's survey.

- Bloomberg