Businesses chipper as concerns about softening demand prove unwarranted - Quarterly Survey of Business Opinion, July 2016
05 July 2016
New Zealand Institute of Economic Research (Inc)
Media release, 5 July 2016
Embargoed until 10am 5 July 2016
The NZIER Quarterly Survey of Business Opinion
The latest NZIER Quarterly Survey of Business Opinion shows a rebound in business confidence in the June quarter. Demand held up over the quarter, against expectations earlier this year of a softening in demand.
A net 22 percent of businesses saw increased demand over the past quarter, with a net 19 percent expecting an improvement over the next quarter.
The improvement in sentiment was widespread across the sectors and regions. Nonetheless, there remains a divergence in business confidence between the urban and rural regions, reflecting the differing fortunes of the tourism and dairy industries. Although business confidence in dairy-intensive regions including Taranaki and Southland improved, pessimists still outnumbered optimists.
Construction drives economic growth, but skill shortages loom
The building sector is a standout, as a solid pipeline of residential, commercial and Government work underpins a further lift in confidence in the sector. Businesses in the building sector are very optimistic about expanding through investment and hiring.
However, hiring plans may be hampered by increased difficulty in finding staff, with building sector firms reporting shortage of skilled staff at its most acute since 2003.
Profitability improving, but inflation remains muted
Moderating cost pressures and improved pricing power have seen an improvement in profitability amongst businesses. A net 1 percent of businesses lifted prices over the June quarter, in contrast to the net 5 percent of businesses which cut prices in the March quarter.
We expect annual inflation will lift gradually over the coming years. However, the subdued inflation outlook indicates further scope to cut the OCR. The heightened uncertainty from Britain’s recent decision to leave the European Union (which occurred after our survey closed) suggests a greater risk the Reserve Bank will choose to cut the OCR in August in a bid to buffer the New Zealand economy against any downside risks.
Figure 1 Demand held up, against businesses’ earlier expectations of a weakening
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