Business confidence drops despite robust economy

By NZPA

Tuesday 21st January 2003

The rising New Zealand dollar and the weak United States economy helped squash business confidence at the end of last year, despite the continued robust domestic economy.

A net 4 percent of businesses, seasonally adjusted, expected trading conditions to worsen in the next six months, according to the New Zealand Institute of Economic Research's (NZIER) December business survey, compared with a net 15 percent expecting an improvement in the September survey.

However, a net 3 percent of firms in actual terms (before seasonal influences are removed) expected the general business situation to improve.

That compared with an actual net 5 percent in the September survey expecting a deterioration

The net figure is the number of pessimistic respondents subtracted from those who are optimistic.

The Quarterly Survey of Business Opinion, released today, showed that economic growth was continuing at a slightly lower rate and was likely to ease to the forecast 2.5 percent growth in the year to March 2004.

Despite robust domestic trading activity in the December quarter, fewer firms reported increases in domestic sales and output, seasonally adjusted, the institute said.

"The major factor affecting confidence in this quarter has probably been the appreciation of the New Zealand dollar against the US and Australian currencies, which will decrease export competitiveness and reduce New Zealand dollar returns.

"The weak state of the US economy and growing evidence that the Australian economy is slowing down, and concerns about a possible war in Iraq, may have also dented business confidence."

The New Zealand dollar rose 10 percent against the greenback and 6.5 percent against the Australian dollar between the NZIER's September and December surveys.

Activity among manufacturers and builders remained high, but was likely to ease in the first quarter of 2003. Retailers also expected growth to ease.

However, manufacturers and builders expected to build on already strong export growth in the next three months. Import growth was likely to ease in the first three months of this year.

Confidence was high in the booming service sector, which experienced a solid rise in volumes in the December quarter and expected further strong growth.

For exporters things appeared bleaker, with a seasonally adjusted net 28 percent picking business conditions to deteriorate in the next six months, compared with 8 percent of non-exporting firms expecting a deterioration.

All firms have experienced a rise in productivity in the last year, the NZIER said.

Capacity utilisation was at its highest level since March 1974, suggesting that firms -- particularly building firms -- were near their potential level of output.

"High capacity utilisation with difficulty in finding workers suggests investment growth will continue. And as the survey shows, investment intentions in plant and building are positive and well above their historical averages," the institute said.

Inflation was tipped to edge down to about 2 percent in the next nine months, partly because of the external environment.

The Reserve Bank was going to be faced with little need to adjust monetary policy in the short term, with no rise in interest rates likely.

Across the Tasman, business confidence among Australian manufacturers remained similar to three months ago, at 11 percent expecting the general business situation to deteriorate in the next six months.

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