Business confidence fell six points in February, as the effort to contain the coronavirus outbreak dealt a blow to exporters' economic expectations.

Sharon Zollner, chief economist at ANZ New Zealand, said the result of its latest New Zealand Business Outlook survey result had been a "game of two halves".

Survey responses taken earlier in February were more positive than those taken later, as exporters became increasingly concerned about the economic impact of containing covid-19.

Two-thirds of survey responses were received at the beginning of the month, but the remainder were collected after February 17.

Advertisement

In the first sample group, confidence fell by 14 per cent, while confidence among the second group fell by 33 per cent.

Nearly a fifth of the first sample expected stronger activity for their firm, while only 4 per cent of the latter sample did. Zollner said this was likely due to the coronavirus which began to dominate headlines during this period.

"The covid-19 outbreak in China appears to be causing widespread alarm about the outlook for both the New Zealand economy and firms' specific projects," she said.

Across the whole sample, business confidence fell six points in February, with a net 19 per cent of firms expecting conditions to deteriorate in the coming year.

The better economic indicator is firms' expectations for their own activity, which also fell but remained positive with a net 12 per cent anticipating increased business activity.

Confidence among the agriculture sector collapsed, falling 30 per cent and expectations for their own activity nearly halved

Zollner said the human and economic damage from the covid-19 outbreak was taking a heavy toll on sentiment in the agricultural sector, which was already concerned about dry conditions.

"Our best hope is that the disruption proves short-lived, but there is no question the export-oriented economy is reeling," she said.

Advertisement

Jane Turner, a senior economist at ASB, said that over the month it had become clear the effort to control the spread of covid-19 would be highly disruptive to some exporters and would leave a meaningful short-term impact on GDP. The bank lowered its first-quarter GDP forecast by 0.6 percentage points.

"We expect business confidence in March to be much weaker, more fully reflecting the economic disruption caused by the measures to limit the spread of covid-19," Turner said.

The dramatic loss of confidence from agriculture was somewhat offset by the construction industry which more than doubled its confidence with a net 22 per cent of firms expecting busier times ahead, on the back of a lift in both residential and non-residential building intentions.

Turner said this newfound confidence likely stems from falling interest rates, which have propelled property demand.

While the domestic-focused construction industry appeared immune to the negative effects of the virus outbreak, Turner warned the sector remained an area to watch as global supply chain disruption could result in a shortage of building materials.

In the ANZ survey, businesses expected profitability, investment and employment to all be lower, while retail pricing intentions shot up 54 per cent to the highest level since mid-2008, as firms expected to have to hike their prices.