Businesses adjust expectations as demand softens - Quarterly Survey of Business Opinion, July 2015, media release

07 July 2015

New Zealand Institute of Economic Research (Inc)
Media release, 7 July 2015
Embargoed until 10am 7 July 2015
The NZIER Quarterly Survey of Business Opinion

The latest NZIER Quarterly Survey of Business Opinion shows the New Zealand economy losing momentum. The drop in activity indicators in the June 2015 quarter points to annual growth remaining below 3% over the coming year – a marked drop from the 3.5% annual growth we saw at the end of last year.

Business confidence fell to the lowest level since September 2012. Since the Global Financial Crisis, businesses’ activity expectations have outpaced actual activity. However, it appears businesses have now moderated their activity expectations to be more consistent with the softening demand environment.

That said, on a nationwide basis a net 13% of businesses still expect an improvement in their own trading activity over the next quarter. Expectations have fallen – but from lofty levels.

The effects of lower dairy prices are evident, with some dairy-intensive regions such as Southland, Waikato and Canterbury seeing a net number of businesses expecting a worsening in conditions ahead.

Profitability expectations drop

Experienced domestic trading activity, which closely mirrors GDP growth, dropped from 19% in the March 2015 quarter to 10%. This is consistent with annual GDP growth remaining below 3% for the year to June 2015.
Profitability expectations also fell, and businesses have now pared back plans to invest in plant and machinery and buildings.

Capacity utilisation edges up to record high, but inflationary pressures weak

Despite the moderation in activity, capacity utilisation amongst manufacturers and builders rose to a record high in the June 2015 quarter. With businesses increasingly focussing on leaner operations and minimising any spare capacity, capacity utilisation has trended higher since the beginning of 2014.

However, there is no sign of inflation, with only a net 1% of businesses reporting raising prices over the past quarter – a level not seen since early 2009.

These results suggest further interest rate cuts for the remainder of 2015.

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

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