New Zealand businesses are expected to stay glum while the dust settles from the new Government's policies.

Business confidence fell to a net 10 per cent of firms negative about the year ahead, from a net zero reading with as many pessimists as optimists in September, according to the
ANZ Business Outlook.

In seasonally adjusted terms, business confidence fell to a net 8 per cent negative from a net 16 per cent positive.

"Most survey responses were received in the first half of the month, before the final government make-up was decided," said ANZ Bank New Zealand chief economist
Cameron Bagrie.


"So this month's survey primarily covers the uncertainty around the outcome and not the outcome itself. The latter will be next month's story."

While other indicators held up better, a tempered mood became more apparent, Bagrie said.

Regarding activity outlook, a net 22 per cent of firms anticipate better times ahead for their own business, down from 30 per cent in September. Adjusted for seasonality, activity expectations fell to net 24 per cent from net 37 percent, below the average of net 28 per cent.

"With the economy now deep into the business cycle, it's harder to make strong gains, particularly with an engineered slowdown occurring in the housing market and resource constraints apparent.

"Transitions can be wobbly and create uncertainty, which is being exacerbated by changes in government policy and economic direction. What the 'social justice' version of capitalism or 'wellbeing' means for longer-term growth prospects remains an important talking point, and not only in New Zealand," Bagrie said.

Profit expectations also fell in October, with a net 12 per cent anticipating bigger profits in the year to come versus 18 per cent in September. A net 20 per cent see exports increasing over the coming year, down from 25 per cent in the prior month, and Bagrie said it was too soon to see any benefits of the lower New Zealand dollar.

Residential construction investment intentions rose to net 31 per cent positive, from net 18 per cent in September, while commercial construction intentions rose to net 43 per cent positive from net 18 per cent.

The survey shows that pricing intentions were unchanged at net 20 per cent planning increases over the year, while inflation expectations fell to 1.9 per cent from 2 per cent in September.


Firms' investment plans dipped to net 12 per cent from net 13 per cent in September, and new hiring intentions eased to net 14 per cent from net 15 per cent.

ASB senior economist Jane Turner expected business confidence to remain subdued over the short term reflecting the initial uncertainty from a change in government.

"The fall in businesses' own activity expectations is more modest than the fall in headline confidence, but points to below-trend growth nonetheless," she said.

"In the short term, weak inflation indicators reinforce that rate hikes remain some time away and there are no implications for the RBNZ."

Businesses did not like uncertainty and the uncertainty associated with a change in government was likely to weigh on economic growth for the rest of the year.

"We will likely have to wait until early next year, once the dust of change settles, to get a proper read on confidence," Turner said.

The figures come ahead of quarterly employment data to be released on Wednesday, which ASB expects will show a "robust lift" in employment and unemployment to lower to 4.7 per cent.

The bank said in a statement that wage inflation looked set to accelerate to a three-year high due to recent pay equity settlements.

"The employment statistics will come under further scrutiny over the next few months, with the Labour-NZ First Government set to introduce an employment target into the Reserve Bank of New Zealand's objectives," the statement said.

"The details of Labour's plans are light, but preferences appears to be for similar set up to the Reserve Bank of Australia and the Federal Reserve."

- with BusinessDesk