Business confidence hammered in June

By NZPA

Friday 28th June 2002

Interest rate hikes and a rising kiwi dollar have hammered business confidence into negative territory, the latest National Bank Business Outlook shows.

Confidence levels have been on the wane for the last three months and now a net 7 percent of businesses expect conditions to deteriorate over the coming year, compared with a net 7 percent who expected an improvement last month.

National Bank chief economist John McDermott said the subdued sentiment reflected concern about rising interest rates and a rapidly appreciating currency.

The Reserve Bank has hiked its Official Cash Rate -- the benchmark for mortgages and business lending -- by 75 basis points to 5.5 percent in last three months, and is widely expected to extend that by another 25bps at next week's review.

The kiwi dollar, meanwhile, has been one of the best performing currencies in the world so far this year, rising by about 20 percent to just under US50 cents.

The agricultural sector, which last year grabbed the quinella of high commodity prices and a low dollar, was hardest hit in the latest survey -- with 50 percent of respondents predicting economic conditions will deteriorate over the coming year.

This is the lowest level of confidence in the farming sector since June 2000.

Dr McDermott said farmers are concerned about the anticipated drop in this season's dairy payout, which equates to lost earnings of about $1.3 billion if realised.

Sheep and beef farmers are also concerned about the impact of the rising kiwi on prices received.

Despite the fall in overall confidence levels, farmers remain positive about their spending intentions, with a net 10 percent of farmers expecting to increase capital equipment over the next 12 months.

"Fortunately, dairy farmers have still to receive about 90 cents of the $5.33/kg of milk solids from the 2001/2002 season payout," Dr McDermott said.

"This payment will be received in the 2002/03 financial year and will start the season well. Moreover, the forecasted $4.00/kg of milk solids will be the third highest on record and in inflation-adjusted terms will be just below the 10 year average."

Also weighing on confidence levels in this month's survey is weakness in global equity markets and renewed fears of terrorism, suggesting that the global economic recovery may be weaker than initially hoped for, Dr McDermott said.

Another survey released today by the Employers and Manufacturers Association (Northern) backed up the National Bank's findings.

The association's business conditions survey for May shows a net 11 percent of those surveyed expect turnover and profitability are about to worsen.

"Last month all respondents in the sample thought business conditions would either improve or remain the same; now 29 percent think things are about to worsen," Bruce Goldsworthy, EMA manager of manufacturing, said.

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