NZ business confidence plummets

By Phil Boeyen, ShareChat Business News Editor

Thursday 11th October 2001

New Zealand business confidence has followed overseas trends and dropped like a stone in the wake of the US terrorist attacks.

The New Zealand Institute of Economic Research reports that confidence nose-dived in the September quarter, with a net 44% of businesses surveyed now expecting the general business situation to deteriorate over the next six months.

The latest figures compare to a net 1% of firms who expected an improvement in the June quarter survey. After removing regular seasonal variation, a net 28% of firms expect general business conditions to deteriorate compared to a net 10% of firms expecting conditions to improve in the last survey.

All survey responses were received after September 11, 2001.

The fall is the largest since the currency crisis in June 1984 and the fourth largest fall since at least 1970. The other two largest falls occurred during the 1973/74 oil shock.

"Business confidence has clearly been rocked by the terrorist attacks on the US, and the uncertainty surrounding the economic outlook since these events occurred," the institute says.

It notes, however, that while the terrorist attacks on the US will have consequences for the New Zealand economy, the magnitude of the decline in confidence seems overstated compared to firms' expectations for their own performance.

"Firms have positive expectations for their own activity over the next three months. This is encouraging news, and suggests that the New Zealand economy may be able to successfully navigate its way through these uncertain times."

According to the survey the service sector has remained the most pessimistic sector, while manufacturers suffered the largest decline in confidence this quarter.

"There has been a substantial fall in manufacturing firms' expectations for increasing export sales, although expectations remain positive. Manufacturing firms expect further growth in output to satisfy expectations of both higher export and domestic sales."

Firms in the retail and wholesale sectors are the least pessimistic.

NZIER says despite the overall pessimism, all sectors recording increased domestic activity in the September quarter, although growth has eased since the June quarter. Manufacturers and builders expect output to rise and merchants expect sales to rise in the December quarter.

From a global perspective the institute points out that interest rates cuts and US tax cut packages are likely to help a strong recovery by the middle of next year, although a big unknown is the outcome of military retaliation undertaken in response to the attacks, which has the potential to further affect confidence.

In New Zealand the tourism industry is picked to be the sector most directly affected but it's not all gloomy.

"A comparison with the events of the Gulf War would suggest that New Zealand may now be regarded as a relatively safer place to visit, and while a significant drop in US visitors is likely, visitor numbers from the Asia-Pacific region could hold up.

"Lower aggregate tourist spending resulting from fewer overseas visitors will be partly offset by more New Zealanders staying home, due to the same lack of confidence in air-travel"

Although the recent interest rate cuts should help to shore up business and consumer confidence at home, NZIER says if confidence remains low, domestic activity will ultimately be affected.

"Household spending will be the key to maintaining reasonable economic growth, until the world economy recovers."

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