Business confidence is improving - though only slowly, but firms are finding it much easier to find labour, particularly unskilled labour, according to the latest Quarterly Survey of Business Opinion (QSBO) from the New Zealand Institute of Economic Research (NZIER).
The NZIER says a net 53 % of respondents expected a worsening of general economic conditions over the coming months, down from 59% in the last survey.
Demand remains soft with a net 17% of businesses reporting reduced activity in the September quarter.
One significant change is the easing of formerly acute labour shortages. In particular, unskilled labour was far easier to find. This development has been assisted by the strong recovery in net migration inflows.
This is expected to make unemployment rise.
However, Inflation is expected to rise in the short term, due to higher fuel costs, but to come down later.
NZIER says there are indications that the regime of higher interest rates, with the Reserve Bank having raised the Official Cash Rate to 5.5%, is starting to dampen demand in the economy.
On the other side of the coin, many businesses are still experiencing intense cost pressures.
However there was a decline in the proportion of firms which raised prices in the quarter.
The least happy sector was retailing, where a net 66% of firms expected economic conditions to worsen over the next few months.
NZIER expects this problem to be compounded by many homeowners facing the need to refix mortgages at rates of 7% or higher.
This will take ready money out of their wallet, reducing their ability to go shopping.
NZIER principal economist Christina Leung says these factors are easing the impetus towards more inflation, because businesses are constrained from raising prices, even though their own costs are rising.
“Softening demand is reducing the pricing power of businesses,” she says.
Manufacturing companies were feeling downbeat but the services sector was more confident.
A survey of architects indicated a real drop off in work levels, indicating there would be a less building work in coming months or years.
“Firms are feeling less downbeat about the coming business conditions but the situation is still a concern.
“Fewer businesses are worried but there is still negative opinion for a majority.”
The QSBO is widely regarded as a strong indicator of how the business community rate the progress of the economy and how well state institutions are making life for the productive sector of the economy
4 Comments
NZIER expects this problem to be compounded by many homeowners facing the need to refix mortgages at rates of 7% or higher.
This will take ready money out of their wallet, reducing their ability to go shopping.
Petition to now rename "the wealth effect" to "the poverty effect."
Assets have had an amazing run, particularly housing. We where never going to be able to have assets out-pacing wages perpetually.
"A survey of architects indicated a real drop off in work levels, indicating there would be a less building work in coming months or years."
Good. I expect an architect or two will be phoning me to say, "How's that apartment building idea of yours coming along? Can we help?"
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