Confidence in the construction sector has dropped as supply constaints bite. Photo / Dean Purcell
Confidence in the construction sector has dropped as supply constaints bite. Photo / Dean Purcell
The building sector has gone from being the most optimistic to the most pessimistic of the sectors surveyed in NZIER Quarterly Survey of Business Opinion (QSBO).
A net 43 per cent of building sector firms were expecting a deterioration in general economic conditions ahead.
But with issues like labour shortagesand supply constraints still biting, economists say they offer another "green light" for the Reserve Bank to hike the official cash rate tomorrow.
"Confidence in the building sector weakened despite continued solid demand, particularly when it comes to the pipeline of Government construction work," said NZIER principal economist Christina Leung.
"Capacity pressures remain very acute in the building sector, but building sector firms are finding it easier to pass on higher costs by raising prices."
A net eight per cent of businesses expected a deterioration in general economic conditions over the coming months – a turnaround from the net nine per cent expecting an improvement in the previous quarter.
This QSBO survey was taken over the period August 2 to September 27, 2021, so it captures some of the impact from the latest Covid-19 outbreak on businesses in New Zealand.
This weakening in sentiment was despite demand remaining solid, with a net 29 per cent of businesses reporting an increase in their own trading activity in the September quarter.
"Uncertainty over how the latest Covid-19 community outbreak will evolve has led to more caution among businesses towards investment in buildings, plant and machinery," Leung said.
Christina Leung is a principal economist with the New Zealand Institute of Economic Research. Photo / Mike Scott
"However, firms are feeling more positive about increasing headcount in the next quarter, particularly among retailers. This suggests that businesses are planning for a rebound in demand when alert level restrictions are relaxed."
ANZ economists said the results confirmed their view that the Reserve Bank will lift the OCR 25 basis points to 0.5 per cent tomorrow.
"Looking through the considerable noise, it's another green light for beginning their long-expected OCR hikes," said ANZ's Finn Robinson.
"The RBNZ have emphasised that reduced monetary stimulus is needed to avoid overshooting their targets. For us, today's data confirms that this is a real risk despite the likelihood of prolonged lockdown in Auckland, and the very real risk that the rest of the country will find itself under more onerous restrictions before long."
