Business confidence drops, but firms’ own activity remains healthy - Quarterly Survey of Business Opinion, October 2015

06 October 2015

New Zealand Institute of Economic Research (Inc)
Media release, 6 October 2015
Embargoed until 10am 6 October 2015The NZIER Quarterly Survey of Business Opinion

The latest NZIER Quarterly Survey of Business Opinion shows business confidence falling to its lowest level since March 2011. A net 9 percent of businesses now expect deterioration in the New Zealand economy over the coming months.

This drop in confidence is in stark contrast to firms’ own trading activity. A net 12 percent of businesses reported an improvement in their own trading activity over the past quarter. Even more positive was the rebound in businesses’ expected trading activity over the next quarter, with a net 17 percent of businesses expecting an improvement.

The recent dominance of negative news about the New Zealand economy has left many businesses feeling uneasy about general business conditions, but few have seen a direct effect on demand in their own business.

Firms still looking to expand, cautiously

Despite concerns over the broader outlook, businesses are still looking to hire and invest in plant and machinery. With labour shortages continuing to ease, many businesses are seeing now as an opportune time to increase headcount.

Inflationary pressures continue to weaken

Businesses are finding it ever more difficult to maintain current price levels, let alone increase prices. In fact, a net 6 percent of businesses reported cutting prices over the past quarter – a level not seen since June 1999. Back then, a sharp drop in petrol prices over 1998 and 1999 drove CPI to a decline of 0.5% for the year to September 1999.

Capacity pressures have eased from its record high last quarter, and competitive pressures are also helping to put downward pressure on prices.

Weak pricing power has had a negative effect on profitability, but businesses are fairly optimistic about an improvement in profitability over the coming months. This is partly based on the expectation that they will be able to pass on some of the cost increases.

The weak inflation environment suggests further easing by the Reserve Bank – we expect one further interest rate cut by the end of this year.

Figure 1 Drop in business confidence contrasts with firms’ positive own trading activity

Source: NZIER

For further information please contact:
Christina Leung
Senior Economist & Head of Membership Services
Ph +64 21 992 985

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