NZIER’s QSBO shows deterioration in demand and sentiment - Quarterly Suvery of Business Opinion, July 2019
02 July 2019
New Zealand Institute of Economic Research (Inc)
Media release, 2 July 2019
NZIER Quarterly Survey of Business Opinion
Embargoed until 10am 2 July 2019
The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows business confidence fell to its lowest level since March 2009, with a net 31 percent of businesses expecting a deterioration in general economic conditions over the coming months.
Adding to the negative news was a further decline in firms’ own trading activity, with a net 4 percent of businesses reporting reduced demand in the June quarter. A net 4 percent of businesses also expect demand to fall in the next quarter – the weakest level since June 2009. These measures suggest a softening in annual GDP growth to below 2 percent over the second half of 2019.
Manufacturing sector the most pessimistic
Sentiment remained the weakest in the manufacturing sector. Confidence amongst manufacturers fell to its lowest level since December 2008, with over half of manufacturers surveyed expecting economic conditions to worsen over the coming months. Deteriorating profitability contributed to the pessimism, with a net 3 percent of manufacturers cutting prices despite rising costs over the past quarter. This led manufacturers to pare back on hiring in the June quarter.
The pipeline of construction work has improved, but building sector firms’ expectations of output for the next quarter are subdued. However, pricing power has improved for firms, with more firms able to raise prices to recoup margin.
There are also signs retailers are finding it easier to increase prices, although over half of retailers still reported rising cost pressures. Retailers are reducing headcount, likely in response to softening demand and rising labour costs given the increases in the minimum wage.
Further weakening in profitability
Although profitability in some sectors is starting to show signs of improvement, overall profitability has fallen to its lowest level since March 2011. Firms have reduced headcount but are feeling more optimistic about investing in plant and machinery and buildings. We expect that as wage growth continues to pick up this should encourage more firms to invest in labour-saving technology.
Firms downbeat across most regions
The downbeat mood was broad-based across most regions, with West Coast and Tasman the exceptions. In particular, weaker demand in the Bay of Plenty is weighing on pricing power and hence having a negative impact on profitability amongst firms in the region.
Figure1 Business confidence at its lowest level since March 2009
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