NZ business confidence ebbs in November, holds near 10-year highs

Thursday 26th November 2009

Business confidence ebbed this month as firms grew more cautious about the pace of New Zealand’s economic recovery as the global economy manages only a tepid revival, according to the National Bank Business Outlook.

The series has a strong correlation to the New Zealand Institute of Economic Research’s Quarterly Survey of Business Opinion, which is closely followed by the central bank. A net 43.4% of respondents expect better times in the coming year, down 5 percentage points from a net 48.2% a month earlier.

“Despite the turn lower, it is hard to describe the level of confidence as anything but healthy,” said Khoon Goh, senior markets economist at ANZ National Bank.

New Zealand’s economy climbed out recession in the second quarter after falling into its first prolonged contraction in a decade. Business confidence surged to a 10-year high as the resurgent housing market stoked the revival in economic activity, much to the Reserve Bank’s chagrin, which has advocated an export-led recovery to help rebalance the economy and boost household saving.

The drop mirrors a fall in consumer confidence, which declined this month after four months of consecutive growth, amid preparations for the Christmas shopping season. The looming sale season underpinned retailers’ sentiment about the economy, which was the only sub-group surveyed that recorded an increase in confidence.

Goh said policy makers need to address “unsustainable” government services, though this appears unlikely to happen as they are “judged in the court of public opinion.”

“As Christmas nears, we all look forward to good cheer – here is hoping it does not bring complacency when it comes to the inevitable process of change,” he said.

Construction took the biggest knock in confidence, though it still topped the survey in sentiment, activity expectations, employment, profits and investment, while livestock investment dropped into pessimistic territory at -4.4%, compared to a net 5.2% a month earlier.

Export expectations improved in spite of the persistent strength in the kiwi dollar, which has surged almost 50% from its sib-50 U.S. cents low in March. The kiwi recently traded at 72.62 cents from 72.73 cents immediately before the survey’s release.

Investment expectations edged higher to a net 6.8% of respondents expecting better conditions in the coming year, while fewer businesses expect unemployment to rise, though it’s still at a net 35.2%.

Almost three quarters of respondents expect the Reserve Bank will boost interest rates in the coming year, though Goh said the subdued price intentions means time is still on the central bank’s side.

Businesswire.co.nz

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