NZ business activity slows, confidence dims in December

Tuesday 17th January 2012

New Zealand local trading activity slowed and business confidence dimmed in the December quarter as the flurry of work in the wake of the Canterbury earthquakes comes back to more normal levels.

Firms’ own activity slowed to a negative 4 percent from a 1 percent expansion in September, broadly in line with the moderation in the national economy, according to the New Zealand Institute of Economic Research’s quarterly survey of business opinion. NZIER said Canterbury’s rebuild was supporting growth in businesses’ trading activity, with the rest of the country slowing for two quarters.

A net 3 percent of businesses were pessimistic about the general business situation in the three months ended Dec. 31.

That turns around a net 10 percent of firms being optimistic in the September survey. Profitability expectations weakened to a negative 17 percent from a negative 14 percent.

“Canterbury is rebounding from the earthquake disruption, but the country is slowing,” principal economist Shamubeel Eaqub said. “The survey shows slowing momentum, but still positive activity in the economy.”

Eaqub warned responses from Canterbury firms weren’t complete and said the survey may be overly optimistic about the region. Government figures showed New Zealand’s gross domestic product expanded 0.8 percent in the September quarter, accelerating from a 0.1 percent pace three months earlier, with a build-up in inventories underpinning growth.

Today’s QSBO trading activity survey is consistent with annual economic growth of some 1.6 percent, NZIER said.

“The momentum we had built up in the first half of the year is fading,” Eaqub said. “We’re not talking about out-right contraction,” rather a slowdown in trading activity, he said.

The survey said retailers’ high expectations for the Rugby World Cup didn’t appear to materialise in the quarter, with sluggish sales leading to an inventory build-up.

Still, retail sales growth remained positive at 2 percent, slowing from 4 percent in the September quarter. Eaqub said that could lead to “some weakness in Q1 this year” with the build-up in inventories potentially “unexpected and unanticipated.”

Building activity slowed in the quarter to negative 2 percent experienced, and a fall in new orders, with negative 21 percent in new orders, indicating further weakness in the construction sector.

Canterbury is beginning to show signs of capacity pressure, with utilisation of buildings and manufacturers climbing to 90.2 percent from 89.6 percent in September.

That didn’t feed into inflationary pressures, which eased ahead of December consumer price index data out on Thursday. Economists are picking the CPI held at 0.4 percent in the final three months of the year, and firms surveyed in the QSBO wound back interest rate increases to 26 percent from 54 percent in September.

The Reserve Bank will review monetary policy next week, and is expected to keep the official cash rate on hold at 2.5 percent for most of this year.

The survey showed continued resilience in the labour market, with actual hiring and intentions to take on new staff improving, though firms are finding it easier to find unskilled staff rather than skilled workers.

The services sector continued to recover through the quarter, with the volume of sales rising to 3 percent from a negative 6 percent, though expectations declined to a negative 1 percent from plus 17 percent.

Firms’ building investment intentions were underpinned by demand in Canterbury, with the headline figure unchanged at 6 percent, though plant and machinery investment intentions slowed to 0 percent from plus 6 percent in September.

(BusinessDesk)

BusinessDesk.co.nz

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