Business confidence drops in April

By Phil Boeyen, ShareChat Business News Editor

Monday 30th April 2001

Business confidence has taken a battering according to the latest National Bank business outlook survey.

The survey has found business confidence almost halved in April compared with the previous month, with a net 17% of firms expecting general business conditions to improve over the coming year, down from 30% in March.

The bank says global growth jitters have taken their toll on general business confidence, although firms' expectations about their own outlook remain reasonable and other survey indicators have also held their own.

Chief economist with the National Bank, Brendan O'Donovan, says firms' pricing intentions and inflation expectations continue to ease, which will provide the Reserve Bank with comfort to continue to reduce interest rates.

"The RB has been handed the (losing) trifecta of weakening global growth, deteriorating business confidence and modest inflation. They have responded by cutting interest rates, but more work has to be done.

"The direction and fragility of confidence is clear. To boot, drought conditions over much of the country mean that we will see the rural community exercise caution and dampen the demand stimulus from the strong recovery in rural incomes over the past year."

Mr O'Donovan says that although financial markets have begun to price in a strong recovery in the US economy, and share markets there have recovered from early April lows, the potential for a protracted period of economic weakness is still present.

"These are very volatile times and sea changes in sentiment occur on new pieces of data. One month S&P500 share price volatility is currently twice its average of the past 15 years while volatility in the Nasdaq has quadrupled.

"The game is not over, don't leave the stadium early."

Mr O'Donovan says it's yet to be seen how US consumers will react to deteriorating cyclical factors such as increased job layoffs, corporate earnings downgrades and slowing income growth at a time when their personal saving rate is in negative territory.

Finance Minister Michael Cullen says although the latest survey shows that the uncertain world environment has reduced confidence levels, there is still plenty of encouraging news.

"The results point to a continuing strong labour market in New Zealand with almost 80% of respondents expecting the unemployment rate - now at a 13-year low - to either remain the same or fall.

"And the evidence suggests that the inflationary pressures in the economy have eased back substantially, with 70% of those surveyed saying they expect prices to remain steady or move down."

Mr Cullen says he is confident New Zealand has the momentum and opportunity to carry the country through any short-term downturn caused by deterioration in the US, Australian and Japanese economies.

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