Business confidence extends gains while agriculture stumbles

Tuesday 30th June 2009

Business confidence extended its run into positive territory for the second consecutive month as the turnaround in global sentiment boosts exporters' outlook.

Still, the prospect of a lower payout for dairy farmers took its toll on outlook in the agriculture sector, according to the National Bank Business Outlook survey.

A net 5.5% of firms expect business conditions to improve in the next 12 months, up from 1.9% last month when the series reported optimists outweighed pessimists for the first time since September last year.

Profit expectations in the agriculture sector retreated as a net 12% of firms surveyed expect investment in livestock to sink in the coming year, from a net 6.1% last month.

Even though the economy continues to shrink, “the positive spin is that the pace of contraction is occurring at a slower rate,” said Cameron Bagrie, the bank’s chief economist. “Sentiment within the agriculture sector slipped, and it’s hard to go past the reality check that a dairy payout forecast of $4.55 per kilogram of milk solids will be having.”

The New Zealand economy shrank 1% in the first three months this year, and has contracted 2.7% over the last year, its first full-year decline since 1992, according to government data.

Fonterra Group Cooperative, the world’s largest dairy exporter, cut its forecast payout for the 2010 season 13%, citing the resilient kiwi dollar as the cause. This week’s online auction for milk solids on globalDairyTrade will be the first chance to gauge the impact of the US government’s reintroduction of subsidies for dairy farmers.

Meanwhile the March current account deficit shrank to 8.5% of gross domestic product as the value of imports collapsed. Optimism over exports continued to advance in June, with a net 11% of respondents projecting a boost in international sales in the coming year from 5.8% last month.

The construction sector boosted the survey’s findings as it looks to take advantage of the influx of migrants needing new housing. Residential construction intentions jumped to a net 22% from zero last month, while commercial intentions gained to 4.4% from minus 9.1% in May.

Central bank Governor Alan Bollard signaled a pick-up in the housing market could jeopardise the export-led recovery if it resulted in households returning to the “borrow and spend” mentality.

New home building approvals climbed a seasonally adjusted 3.5% in May, the second monthly gain in a row as low interest rates helped revive the property market. Bagrie singled out employment and investment expectations as key to the economy’s recovery.

The outlook for future investment remained pessimistic, with minus 5.6% of respondents expecting to invest in the year ahead, worse than the minus 5.4% last month, while a net 75% see unemployment growing in the coming 12 months, up from 73% in the May survey.

The bank introduced a new question to the series relating to the ease of finding new credit. A net 17% of respondents expect conditions to get more difficult in the next year.

Businesswire.co.nz

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