NZIER’s QSBO shows further drop in business confidence and demand - Quarterly Survey of Business Opinion, October 2018

02 October 2018

New Zealand Institute of Economic Research (Inc) Media release, 2 October 2018
NZIER Quarterly Survey of Business Opinion

Embargoed until 10am 2 October 2018

The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows a further deterioration in business confidence. A net 28 percent of businesses expect economic conditions to worsen – the lowest level since March 2009.

Firms’ own domestic trading activity is a better indicator of GDP growth than business confidence. Firms’ own activity for the September quarter and expectations for the next quarter both fell, indicating a slowing in economic growth over the second half of 2018.

A net 0.4 percent of firms reported higher demand over the September quarter – the lowest level since September 2012.

Firms are worried about Government policy, labour costs and availability, margins and consumer confidence

Through the 50-year history of the QSBO, businesses have tended to be more downbeat about general economic conditions than their own domestic trading activity. The difference between headline business confidence and firms’ own trading activity tends to be larger under a Labour-led Government.

This quarter, we added a supplementary question to delve deeper into the key influences on general business confidence.

We found Government policy, labour costs, consumer confidence, availability of labour and operating margins were the key considerations for businesses when it came to an assessment of general economic conditions.

Larger firms were more influenced by Government policy when assessing the general business outlook. Retailers, manufacturers and builders were more influenced by concerns over labour shortages and costs and consumer confidence.

This suggests uncertainty over the effects of new Government policies and higher costs have contributed to the decline in business confidence over the past year.

Further decline in profitability leads to softer hiring and investment intentions

Profitability continued to worsen, reflecting intensifying cost pressures for many businesses. Businesses remained pessimistic about an improvement in profitability.

This continued deterioration in profitability has made businesses more cautious, with a net 3 percent of businesses reducing headcount in the September quarter.

Businesses were also more circumspect about new investment, particularly for buildings. If profitability was to continue to worsen, businesses will likely hunker down and reduce investment and hiring.

Manufacturers now most pessimistic

Although the downbeat mood was broad-based across sectors, manufacturers have overtaken retailers as the most pessimistic sector. Weaker demand and rising costs have seen manufacturing sector confidence fall sharply.

Rising cost pressures also weighed on building sector confidence, with over half of firms in the sector reporting higher costs. Building sector firms reported some softening in demand in the September quarter, but architects’ measure of work in their office points to a pick-up in the pipeline of residential and commercial construction over the coming year.

Businesses saw Government policy as the most important influence on their assessment of the general business situation

Source: NZIER

For further information please contact:
Christina Leung
Principal Economist & Head of Membership Services
Ph +64 21 992 985 | Email christina.leung@nzier.org.nz

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