Business confidence tumbles, with worst outlook since 1970

Tuesday 13th January 2009

New Zealand business confidence tumbled in the fourth quarter with companies the gloomiest about their own prospects since at least 1970, stoking expectations for job losses and weaker profits amid a prolonged economic slump.

A net 64% of companies expect the New Zealand economy will deteriorate over the next six months, according to the New Zealand Institute of Economic Research. Gloominess worsened from the third quarter when a net 19% saw worse times ahead.

"The sheer scale and sharpness of the deterioration is difficult to ignore," the institute said in the Quarterly Survey of Business Opinion. "Marked declines in employment and investment intentions in particular suggest that economic growth may be softer for longer than previously expected."

The slump in confidence suggests the recession extended into the fourth quarter, making it more likely the central bank will press on with the deepest easing cycle since introducing the official cash rate in 1999. A net 32% of companies surveyed expect to eliminate jobs over the next three months, the highest since the second quarter of 1991.

The New Zealand dollar fell to 57.35 US cents from 57.70 cents before the report was release and down from 58.83 cents yesterday. Khoon Goh, senior markets economist at ANZ National Bank, said the market is pricing in a 75 basis points cut to the OCR, pushing the benchmark down to 4.25%.

The NZX 50 Index sank 1.3% to 2733.472, the biggest drop since December 19. Fletcher Building declined 2.5% to $5.80.

The survey shows a net 3% of firms plan to reduce prices in the next three months, the first time since December 1998 that the net balance of companies plan to cut prices.

The QSBO shows capacity utilization - the level of use of resources available within the economy - fell to 88.8%, the lowest since the second quarter of 1999, from 90.8%.

"What a way to start 2009!" said Robin Clements, senior economist at UBS New Zealand. "It is a gross understatement to say that the survey results were worse than expected. Words like terrible, dreadful and disastrous come to mind."

While a deterioration had been anticipated in the survey, "to see many measures at their worst in near 40 years was beyond our comprehension," Clements said.

There was little regional variation in the level of depression. In the upper North Island, a net 62% of respondents saw worse times ahead, from a net 17% in the third quarter. In the lower North Island, the gloom factor was 60% from 11% and in the South Island it deteriorated to 65% from 25%.

Companies said the ease of finding skilled and unskilled workers was at the highest in 17 years. A net 20% of firms said finding skilled workers was easier, while a net 43% had more luck picking up unskilled workers.

The unemployment rate rose to a five-year high of 4.2% in the third quarter and the Treasury has predicted the rate will reach at least 6% this year.

By Jonathan Underhill

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