Business confidence continues to slide despite a relatively stable economy.

NZIER Quarterly Survey of Business Opinion (QSBO) shows a further decline in business confidence.

It follows last week's ANZ Business Outlook which also saw confidence in the economy falling.

The NZIER survey found a net 19 per cent of businesses expect a deterioration in economic conditions – more pessimistic than the 10 percent in the previous quarter.

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Continuing the recent trend, firms' views on their own trading activity – a good indicator of economic growth – remained more positive.

Firms' expectations of future demand also eased, with fewer businesses expecting improved demand over the next quarter. These developments point to softer economic growth in the second half of 2018.

The drop in confidence was pervasive across the regions, with Taranaki, Otago and Blenheim particularly downbeat.

Weak profitability was a feature across most sectors. Building sector firms report intense cost pressures in the sector, which is continuing to have a negative impact on profitability.

Building sector firms are no longer optimistic about a rebound in profitability, with a 14 percent expecting profitability to worsen in the next quarter.

The retail sector was particularly downbeat, with business confidence falling to its lowest level since March 2009. Profitability in the sector fell sharply, as retailers struggle to pass on substantial cost increases fully through raising prices.

The lift in the minimum wage is likely to have played a key part in the sharp increase in costs, given the relatively greater proportion of the retail workforce that is low-waged.
Businesses more cautious

Weak business confidence and deteriorating profitability is making businesses more cautious about planning for the future.

Although hiring is holding up across most sectors, investment intentions have declined.
This is particularly the case for investment in new buildings, with a net 4 percent intending to reduce this type of investment.

This is flowing through to a softening in the pipeline of construction work, with architects expecting a decline in commercial and government construction work over the coming year.

Last week the ANZ survey showed New Zealand business confidence had plunged to a seven-month low in June with retail most gloomy as costs, credit and capacity weigh on firms.

Business confidence has been a hotly contested political issue this year with the Government initially attempting to address it directly but more recently dismissing its relevance.

In a speech to the Otago Chamber of Commerce last Friday, acting Prime Minister Winston Peters took issue with that possible correlation between the surveys and GDP growth.


According to Peters, "business confidence and real GDP growth show no correlation in this country."

Rather, the facts around growth "suggest an inherent political bias is pervasive in the business sector and the perceptions of stagnation do not have any basis in reality."

Business groups, like the Employers and Manufacturers Association, say uncertainty about Government policies - such as proposed employment law changes - are behind the falling confidence.

- Additional reporting BusinessDesk