Businesses start 2016 in a more downbeat mood - Quarterly Survey of Business Opinion, April 2016
05 April 2016
New Zealand Institute of Economic Research (Inc) Media release, 5 April 2016
Embargoed until 10am 5 April 2016
The NZIER Quarterly Survey of Business Opinion
The latest NZIER Quarterly Survey of Business Opinion shows business confidence dropped in the first quarter of 2016, with a net 1% of businesses expecting a deterioration in the economy in the next six months.
A key driver of this gloominess is that firms have consistently had their expectations of a pick-up in sales dashed in reality. Their optimism is starting to wane – firms now see weak demand ahead. Only a net 6% of businesses expect an improvement in demand – the lowest level since early 2011. Even the retail and services sectors, which has seen solid demand over 2015, are bracing for some softening in sales.
Flowing through to increased caution about expanding
Businesses are paring back on hiring in anticipation of softer demand. Manufacturers are particularly negative about hiring, with a net 5% of manufacturers expecting to reduce staff numbers in the next quarter.
Meanwhile, intentions to invest in new buildings and plant and machinery have stabilised after trending lower over 2015, suggesting modest growth in business investment.
Rising cost pressures starting to bite
The effects of rising cost pressures are evident across all the sectors. A net 26% of businesses reported higher costs in the March quarter – the highest level since mid-2012. More businesses are also expecting further cost increases ahead. There were particularly large cost increases reported by businesses in the building and financial services industries, likely reflecting capacity pressures in the building sector and increased funding costs in the financial services industries.
However, businesses have been unable to pass on these rising costs in the form of higher prices, and this has impacted negatively on profitability. Nonetheless, businesses expect to raise prices in the next quarter, with expectations of improved profitability at its highest level in two years.
The Reserve Bank has indicated it is likely to cut the OCR further this year, and we expect the OCR to reach 2% by June 2016. The more downbeat mood amongst businesses suggests an increasing risk the Reserve Bank will choose to cut in April in a bid to stimulate the New Zealand economy.
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