NZ Business Confidence Dips

New Zealand business confidence fell in April, matching a dip in consumer sentiment, as already downbeat firms scaled back expectations for their own trading activity. The Australia and New Zealand Bank Business Outlook reported a net 23% of businesses were pessimistic about the year ahead, versus 20% in March.

Confidence dropped to an eight-year low in November on political uncertainty when the new Labor government took office. Fewer companies saw their own activity expanding, at net 18% compared to 22% in March. That measure has a stronger correlation with GDP growth, and remains below the historical average of 28, Scoop reported.

“The survey was a mixed bag this month, consistent with an economy pushing its way through capacity constraints and some residual policy uncertainty but with some solid support from record-high terms of trade”, said ANZ chief economist Sharon Zollner. “All sectors are in the red, with services the least pessimistic and agriculture the most. Agriculture did manage a small gain on March, but construction plummeted to its lowest level since 2008.”

On Friday, ANZ’s consumer survey showed confidence dropped back to long-run averages in April as consumers grew less optimistic about their financial futures. Of that survey’s 1,005 respondents, a net 13% saw good economic times in the coming 12 months, down from a net 25% in March, and the five-year outlook dropped 7 points, with a net 18% seeing good times ahead.

“Our composite growth indicator has now dipped to around 2% year-on-year growth,” Zollner said. “We think the economy has more in the tank to keep growth above that, but with consumer confidence dipping and business growth indicators still languishing, it won’t necessarily be as smooth sailing as it has been.”

The survey showed a turnaround in earnings expectations, with a net 1% of the 338 respondents expected profit to shrink in the year ahead, versus net 6% predicting profits to rise in March. Employment intentions fell to a net 9% from a net 10% in the prior month.

Across the four sub-sectors included, all remained negative on general business conditions. Agriculture remained the most negative, with a net 45.7% of respondents expecting business conditions to deteriorate, while retail continued to worsen, at -21.5% from -15.4% the previous month. Manufacturing improved to -25.8% from -33.3% and construction dropped to -36% from -33.4%.

Residential construction intentions dropped to a net 9% positive from 33%, while commercial construction intentions eased to 5% from 9.5%.

Zollner said that data “seems at odds with activity and pricing in the housing market having found a floor, not to mention the KiwiBuild pipeline on offer. The data is volatile, but expected profitability has been in decline for the past 18 months, perhaps reflecting that the sector is hitting resistance in terms of its ability to pass higher costs on.”

He said inflation expectations and pricing intentions were little changed in the survey, with expectations at 2.11% from 2.1% and pricing intentions down to a net 22.3% of firms expecting to raise prices from 29.1% in March. Interest rates were expected to rise by a net 40.3% of respondents, from net 40.2% in March.