NZ firms most pessimistic in nine years, blame govt policy, labour costs

Tuesday 2nd October 2018

New Zealand firms blamed government policy and rising labour costs for their gloomiest sentiment in nine years, according to the New Zealand Institute of Economic Research.

A seasonally adjusted net 28 percent of respondents to the quarterly survey of business opinion were pessimistic about the economic outlook, the worst reading in the survey since March 2009, when local markets hit rock-bottom following the global financial crisis. In March, a net 21 percent of firms were pessimistic.

The New Zealand dollar fell to 66.04 US cents from 66.13 cents immediately before the announcement.

The downbeat tone matched firms' own activity, with a net 0.4 percent experiencing an increase in the September quarter, down from 7 percent in the June survey. Just a net 10 percent anticipate increased demand in the coming three months, down from 12 percent three months earlier.

NZIER added an extra question to find the cause of firms' malaise for the first time in the latest survey. More than half said government policy was a major factor, with the big end of town more likely to blame the Beehive compared to smaller businesses. Retailers, manufacturers and builders were more concerned by labour shortages and costs, and declining consumer confidence.

"Businesses that said that the economic situation will improve were more likely to name shortages as a key influence, while businesses that were downbeat about the economy were more likely to name government policy as a key influence on business confidence," NZIER principal economist Christina Leung told a briefing in Wellington.

Declining business confidence has been politicised since the formation of the Labour-led government last year, prompting Prime Minister Jacinda Ardern to label it "a flashing great neon sign with giant lights and fireworks going off behind it". She set up an advisory group headed by Air New Zealand chief Christopher Luxon to have her ear. The survey of 753 firms was taken in the three weeks to Sept. 25, after the announcement of the group.

Leung said the weaker activity indicated the economy would slow to a pace of 2 percent growth in the second half of the year, following annual GDP growth of 2.8 percent in the June quarter. Treasury yesterday said the government's Families Package, on-going strong migration and a modest pick-up in housing activity would support economic growth through the rest of the year.

The QSBO showed a net 23 percent of firms experienced shrinking profit in the September quarter, compared to 16 percent experiencing shrinking earnings in June. A net 7 percent anticipate lower profits in the coming quarter, an improvement on 12 percent in June.

Leung said that deterioration would typically weigh on employment and investment intentions.

A net 3 percent of respondents reduced headcount, compared to a net 14 percent who took on new staff in June, although a net 13 percent expect to take on staff, compared to 6 percent in June. Firms still struggle to hire, with a net 44 percent saying it's hard to find skilled labour and a net 29 percent saying it's hard to find unskilled workers.

Investment intentions remained subdued with a net 5 percent expecting to scale back investment in buildings, while a net 4 percent expect to invest in new plant and machinery.

Manufacturers were the most pessimistic sector, with a net 40 percent anticipating a deterioration in the economy, which NZIER said coincided with weaker demand and rising costs. The building industry was also downbeat with a net 19 percent expecting deterioration, and a net 18 percent experiencing lower profits.

Still, architects expect more housing and commercial work in the coming 12 months, although they don't expect to see any increase in new government work.

(BusinessDesk)

Comments from our readers

No comments yet