Business confidence falls sharply

By NZPA

Thursday 11th July 2002

Business confidence fell sharply in the last quarter according to the New Zealand Institute of Economic Research's latest Quarterly Survey of Business Opinion (QSBO).

A net 2 percent of firms expect a deterioration in general conditions compared with a net 23 percent who expected an improvement in the last survey.

Economist Doug Steel said the result, which showed confidence close to neutral, was somewhat perplexing given that confidence levels and activity intentions at individual firms was very robust.

NZIER said the fall was partly seasonal. Removing seasonal variations, a net 9 percent expect conditions to improve.

Accounting concerns in the United States and the rise of the New Zealand dollar had dented confidence.

Mr Steel said the survey still pointed to good growth in the second half of this year but showed it would fall away in the first half of next year.

He said that if the Reserve Bank took more note of the activity indicators, it would continue to aggressively raise interest rates. But if it took more note of the general confidence, it might take a more relaxed approach.

The manufacturing sector is the only area where the decline in confidence was larger than is normally the case in the June quarter. The main reason for this seems to be a sharp easing in expectations for export sales -- reflecting firms' alarm at the recent rise in the New Zealand dollar.

On a seasonal basis, a net 27 percent of firms reported an increase in activity, up from 18 percent in the March quarter.

Employment and investment intentions are at their highest levels for some years.

"So aside from the question relating to general business confidence, the survey results point to a continuation of robust economic growth," the NZIER said.

NZIER said a combination of factors in US, Europe and Japan had been sufficiently tinged with negativity to give New Zealand businesses, particularly exporters, reason for concern.

Mr Steel said the rapid rise of the New Zealand dollar appeared to have taken many firms by surprise and there was uncertainty about where the dollar was headed next.

The tightening of monetary policy both through higher interest rates and the stronger dollar had suppressed confidence.

Mr Steel said previous surveys going back to 1972 showed confidence had been dented, but only slightly, with the approach on an election.

Businesses don't like uncertainty, said Mr Steel, and he would expect confidence to recover after the election, particularly if the Labour Party was to secure an overall majority.

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