Weak profits dim NZ business confidence

National Bank chief economist Cameron Bagrie. Photo / Mark Mitchell

New Zealand business confidence fell for a third month as the world's economic troubles started hitting home with local firms, and companies wound back their expected earnings for the coming year.

The National Bank Business Outlook survey showed a net 13.2 per cent of firms are expecting a pick-up in the economy over the next 12 months, down from a net 30.3 per cent a month earlier in last month's survey.

Leading the pessimistic tone was a warning on earnings, with a net 1.6 per cent of firms predicting improved profits, compared to a net 15.2 per cent in September.

"The sacrificial lamb in this survey has been profits," chief economist Cameron Bagrie said in his report. "This does not augur well for investment and employment, critical elixirs of sustained economic expansions."

The survey picks up on the downbeat tone of the New Zealand Institute of Economic Research's September quarterly survey of business opinion, which showed firms see the economy as flat-lining Yesterday, the government's pre-election update showed the Treasury's growth forecasts are still largely intact, though the speed wobbles hitting the global economy has put them on notice.

The National Bank survey showed firms' expectations for improvement in their own activity outlook dropped to a net 26.1 per cent from a net 35.4 per cent a month ago, while investment intentions fell to a net 8.7 per cent from 11.1 per cent and hiring intentions slipped to a net 9.9 per cent from a net 11.9 per cent in September.

Capacity utilisation crept up to a net 17.1 per cent from 16.9 per cent.

Bagrie said it was a "puzzle" that employment and investment intentions were more resilient than profitability.

Construction expectations dimmed in the month, with residential construction dipping to a net 29 per cent from a net 37.1 per cent of firms picking improvement, and commercial building falling to a net 18.7 per cent from a net 21.6 per cent.

Companies' pricing intentions were stable with a net 19.3 per cent expecting to raise prices in the coming year, compared to a net 19.6 in September, and one-year inflation expectations slipped to 3.12 per cent from 3.23 per cent.

A net 7 per cent of firms expect unemployment to increase in the next year compared to a net 5.2 per cent predicting a decline.

"There is enough in this month's business confidence survey on the downside for us to be taking notice," Bagrie said. "The economy still has a reasonable amount of momentum and we think the surprise has been the degree of resilience in business sentiment, given wider developments."