NZ business confidence declines for 6th consecutive month   29 Aug 2014

NZ business confidence declines for 6th consecutive month in August

By Suze Metherell

Aug. 29 (BusinessDesk) - New Zealand firms' confidence declined for the sixth successive month in August, as the country's economic growth comes off the boil amid declining terms of trade, a strong currency and rising interest rates, according to ANZ Bank's latest Business Outlook survey.

A net 24.4 percent of respondents were optimistic business conditions would improve in the coming year, down from a net of 39.7 percent in July, and 46 points below the 20-year confidence high in February. Those picking their own activity to get better fell to a net 36.6 percent from 45.1 percent the previous month.

"Blink and you might have missed the 'good times'," said Cameron Bagrie, ANZ's chief economist. "The economy is clearly past its growth peak. Dairy prices are well down from their turbo-charged highs, the New Zealand dollar is still elevated, house prices have started to go backward, quarter on quarter, and the official cash rate is 100 basis points higher than at the start of the year."

"The economy has moved from recovery into Goldilocks mode," Bagrie said. " It looks like we'll stop short of overheating."

The survey comes after Treasury this month shaved 20 basis points off its forecast for gross domestic product in the year ending March 31, 2015, to 3.8 percent, from the 4 percent Budget forecast in May to reflect a faster decline in the terms of trade from the highest levels in 40 years and a slower pace of domestic inflation. Earlier this week New Zealand posted its first monthly trade deficit in nine months in July, led by falling log prices, the country's third biggest export commodity.

Meanwhile New Zealand's largest export, dairy, has fallen from its recent highs, with the GlobalDairyTrade auction index dropping some 40 percent since the start of the year.

Today's survey shows the agricultural sector is firmly in the red, with a net 34.4 percent expecting business conditions to deteriorate, while those in the services industry were the most optimistic, with a net 41.4 percent believing conditions would improve in the coming year.

While optimists still out numbered pessimists across all measures, confidence did uniformly fall in August, with the exception of capacity utilisation, which edged up 0.4 percent to 29.7 percent and commercial construction expectations which rose to 35 percent, from 25 percent. A net 23.2 percent of firms intended to lift prices over the coming year, down from 26 percent in July, while 66.6 percent were picking higher interest rates, down from 85.3 percent a month earlier. Inflation expectations decreased to 2.51 percent from 2.62 percent.

A net 18 percent of businesses planned to hire more staff, and a net 16.8 percent expected to increase investment. Of the firms surveyed, 20.7 percent expected to increase profits, down from 26 percent in July.

(BusinessDesk)

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