NZ business confidence tumbles

Household caution has weighed on consumer spending, says Grant Thornton. Photo / Herald on Sunday

Business confidence has tumbled in the past year, the 2011 Grant Thornton international business survey of medium to large privately held businesses shows.

The survey found 33 per cent of businesses in this country were optimistic, compared to 66 per cent a year earlier.

Grant Thornton New Zealand national director tax Greg Thompson said factors such as international uncertainty, a high dollar and impending general election were keeping a lid on confidence.

"Household caution has weighed on consumer spending and housing market activity. This is expected to persist into 2011," said Thompson.

"There are increasing concerns regarding inflation, which is expected to surpass 4 per cent in 2011. There are also fears of a policy response in the form of higher interest rates with high levels of private sector external debt resulting in a downgrade of the country's credit rating. Economic recovery is tepid and the pace of recovery has slowed."

He noted that the New Zealand Institute of Economic Research recorded a rise in optimism for the December quarter in its latest Quarterly Survey of Business Opinion.

The Grant Thornton survey also showed optimism falling in Australia to 37 per cent from 79 per cent.

In Australia, many exporters had come under pressure from a strong Australian dollar which remained close to parity with the United States dollar, said Thompson.

"Interest rates have risen from the low level of a year ago pointing to the possibility of some easing in consumer demand in the year ahead. Global growth prospects are also slightly less favourable than they seemed a year ago ahead of the expected bounce back from recession.

"And the present Queensland floods will also have a negative impact on confidence levels."

Latin America led the world in optimism with 75 per cent of privately held business owners being optimistic about their region's economic performance in 2011. In the Asia Pacific region, excluding Japan, optimism was at 50 per cent, while in North America it was 26 per cent, with Europe the least optimistic region at 22 per cent.

- NZPA