Business confidence slips to GFC levels

Photo / Chris Gorman

Uncertainty in global economy influencing decisions but expert says ‘we’re not talking panic stations’.

Business confidence has dropped to levels last seen in the immediate aftermath of the global financial crisis, however ANZ New Zealand chief economist Cameron Bagrie cautions "we're not talking panic stations".

A net 29 per cent of firms were pessimistic about the general economic outlook over the coming year, deteriorating from a net 15 per cent in July, according to the ANZ Business Outlook. One of the major contributors was uncertainty in the global economy.

"Some of the stuff is starting to look more positive [in New Zealand]," Bagrie said. "So dairy prices are starting to recover and building consents are starting to lift. We're still seeing strength across the tourism sector so there's some real reason to believe we could be at a turning point but of course there's still some pretty material challenges out there and the biggest one is the global scene - to say it looks wobbly is putting things very optimistically."

Falling commodity prices and a lack of inflation look set to keep profits down, and businesses have scaled back their intentions to take on new staff or invest in their business. A net 12 per cent of companies see their own activity expanding, down from 19 per cent a month earlier, and a net 1.5 per cent expect shrinking profits, compared to a net 8.9 per cent expecting growth in July.

"Confidence may not be the economic engine that drives growth [ultimately incomes do], but it's critical for keeping the economic wheels turning," Bagrie said. "Lacking confidence, firms don't invest, or take a punt on that new employee. Activity can grind to a halt. That's a growing risk."

Strong growth over the past couple of years is expected to slow down as slumping global dairy prices erode dairy export receipts, and as the tailwind from the Canterbury rebuild starts tapering off.

Although it was gloomy, Bagrie said New Zealand was not out of bullets yet.

"We have a good macro framework - The New Zealand dollar has the capacity to keep dropping and the Reserve Bank has the capacity to drop rates a long way so we have ammunition we can throw at this thing, so we're not talking panic stations," he said. "But if the China story starts to go pear-shaped, that's when they'll start to talk about the Reserve Bank taking the cash rate to 1.5 or 2 per cent, but we do have the capacity to shore things up if the economic headwinds start to intensify."

Yesterday's survey was the fifth monthly decline in business confidence and its second in negative territory, with agriculture the most downcast among the sub-sectors.

A net 39 per cent of respondents see a contraction in livestock investment, compared with a net 8.3 per cent a month earlier, while a net 9.4 per cent of firms see commercial construction intentions shrinking, compared with a net 6.6 per cent in July.

Residential work is still seen expanding, with a net 12 per cent of firms positive on the sector's outlook, up from a net 6.2 per cent a month earlier.

Of the 473 respondents, a net 0.4 per cent expect investment to contract, compared with a net 11 per cent seeing expansion a month earlier, while a net 2.8 per cent plan to take on new staff, down from 9.3 per cent in July.

A net 11 per cent of firms anticipate exports increasing over the coming year, down from 19 per cent a month earlier.

Bagrie said a lower New Zealand dollar and falling interest rates should help stabilise the economy, and dairy prices have shown signs of recovering after their freefall through the first half of the year.

"We need to keep Chicken Little in the coop - the last thing New Zealand needs at present is to talk ourselves into a funk.

"But there are some real reasons for business to be a lot more cautious today compared to six to 12 months ago, and we can't ignore those because those challenges are real."

Gloomy feeling
•Net 29% pessimistic about general economic outlook.
•Net 1.5% expect profits to fall.
•Net 9.4% see commercial construction intentions shrinking.
•Net 41% see the unemployment rate rising.

- additional reporting BusinessDesk