After disappointing Christmas sales, retailers are continuing to pare back expectations for sales, according to NZIER's business confidence survey. Photo: Chris Gorman.
After disappointing Christmas sales, retailers are continuing to pare back expectations for sales, according to NZIER's business confidence survey. Photo: Chris Gorman.
New Zealand's business confidence plunged to the lowest level in three years in the second quarter as companies became pessimistic about profitability expectations.
A net 5 per cent of firms in the New Zealand Institute of Economic Research's quarterly survey of business opinion expect general business conditions to improve, downfrom 23 per cent three months earlier and the lowest level since June 2012.
On a seasonally adjusted basis, net optimists fell to 7 per cent from 20 per cent the previous quarter.
A net 2 per cent of respondents were pessimistic about their expected profitability in the coming quarter, down from an optimistic reading of 12 per cent in the previous quarter.
Meanwhile, inflation pressures were weak, with only a net 1 per cent of firms able to raise prices over the past quarter, the lowest level since 2009.
The survey doesn't cover the agricultural sector, but looking across the regions the decline in dairy prices was evident, with some dairy-intensive regions such as Southland, Waikato and Canterbury expecting worsening conditions, senior economist Christina Leung said.
"The continued fall in dairy prices has had a knock on effect on confidence - there's a lot more uncertainty in when we're going to see a recovery in dairy prices. The knock on effects in terms of spending, particularly the retailers see," Leung said.
A net 25 per cent of financial services firms expect domestic interest rates to fall over the next 12 months, a jump from the net 4 per cent in the previous quarter.
Of responses, 80 per cent were received before the Reserve Bank moved to cut rates at its last monetary policy statement and Leung said since then expectations would have changed.
Senior ASB economist Jane Turner said a second consecutive season of low milk prices along with the slowdown in construction activity growth were key factors weighing on business sentiment.
"We expect further deterioration in economic momentum over the second half of the year.
ASB expected the RBNZ to cut the OCR three times in coming months, to 2.5 per cent by October, she said.
"Lower interest rates and the lower NZD should help boost growth over 2016."
Westpac senior economist Satish Ranchhod said it was notable that it wasn't just confidence that's down, "businesses across the economy have reported that activity softened in the June quarter, and fewer and fewer businesses are expecting a pick-up over the coming months".
"Looking into the details of the report, businesses are reporting a pull-back in hiring and investment intentions," Ranchhod said.
Domestic trading activity and GDP growth
NZIER expects two further cuts to the official cash rate in July and September.
Experienced domestic trading activity, which NZIER says mirrors economic growth, dropped to 10 per cent in the second quarter, from 19 per cent.
One bright spot was the building sector, Leung said.
Output increased and a net 23 per cent of construction firms hired more workers, up from 22 per cent in the previous quarter.
Capacity utilisation was at a record of 93.4 per cent in the quarter, from a previous 92.3 per cent, which largely reflected an increase among builders.
Retailers were particularly downbeat.
After disappointing Christmas sales, firms continued to pare back expectations for sales, Leung said.
