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Home / Business / Economy

Confidence falls for third month

Brian Fallow
By Brian Fallow
Columnist·NZ Herald·
28 Jul, 2010 04:00 PM4 mins to read

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Source / National Bank, Herald Graphic

Source / National Bank, Herald Graphic

Business confidence has taken an unmistakable turn for the worse, with the National Bank's survey falling for the third month in a row.

It is still in positive territory and pointing to the economy recording growth around 3 per cent for 2010.

"But this is down on the 4 per
cent plus it was flagging a few months back," National Bank senior economist Khoon Goh said.

It is at its lowest level for a year and the rate at which confidence is going down is going up.

"The movements in this month's survey are beyond what could be put down to normal monthly volatility. The past three months have seen a clear change in direction," Goh said.

A net 28 per cent of respondents expect the general business situation to get better over the year ahead, down from 40 per cent in June and 50 per cent in April.

If last month's decline could be seen as the economy slowing from a gallop to a canter, the latest survey marked a shift from a canter to a trot, Goh said.

Firms' expectations of their own activity also declined, seven points to a net 32 per cent positive. Two months ago it was a net 45 per cent positive.

"All sectors bar manufacturing recorded declines in their own activity reading," Goh said, and manufacturing's one-point increase was in margin-of-error territory.

But the level of manufacturers' expectations of their own activity indicated the sector was still faring quite high, he said, and the one-point decline in export intentions suggested there had not yet been any discernible impact from wobbles in trading partners' activity.

Hiring intentions have softened. A net 8 per cent of firms expect to add to staff numbers over the year ahead, down from 13 per cent last month.

This was still a level indicative of overall jobs growth, Goh said, but for the retail and agriculture sectors hiring intentions had turned negative.

Investment intentions fell five points to a net 5 per cent positive, which is below the historical average for this indicator, while profit expectations fell 10 points to a net 9 per cent positive.

"At this stage of the cycle we would have expected a stronger rebound in private sector investment, particularly given the sharp contraction seen during the recession," Goh said.

"The current investment intentions reading does not portend a marked pick-up in the near term."

If there was a silver lining in the survey it was the pullback in pricing intentions after last month's surge, he said. A net 31 per cent of firms expect to be putting prices up, down from 39 per cent in June. With GST set to rise on October 1 it was surprising it was not even higher.

"Perhaps this is an indication of the tough demand environment firms are facing and the reality that there will be a lot of consumer resistance to price rises no matter what the cause."

While the Reserve Bank is widely expected to raise the official cash rate to 3 per cent this morning, Goh said that with signs the economy is not surging away and that momentum is levelling out it was difficult to envisage interest rates would move up every six weeks. Other economists agree.

"It is clear the pace of economic recovery has shifted down a gear," Goldman Sachs JBWere economist Philip Borkin said.

"Global growth uncertainty, pending cost increases and soggy demand conditions could all be factors in why firms' optimism is beginning to ease. However we suspect the fact that a net 83 per cent of firms expect interest rate increases over the coming year could be denting sentiment."

Deutsche Bank chief economist Darren Gibbs said the National Bank's survey fitted with his assessment that there is not enough momentum in activity or inflation to warrant a rise in the OCR at every review this year.

"We continue to foresee a pause in the December quarter, following a probable - but not guaranteed - increase on September 16."

Discover more

Official Cash Rate

Bollard lifts OCR, future hikes likely to be less

28 Jul 11:20 PM
Economy

Business confidence falls for third month

28 Jul 03:47 AM
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