NZIER Quarterly Survey of Business Opinion shows a net 31% of businesses see deteriorating conditions over the next 12 months; survey results likely to put more downward pressure on outlook for interest rates

NZIER Quarterly Survey of Business Opinion shows a net 31% of businesses see deteriorating conditions over the next 12 months; survey results likely to put more downward pressure on outlook for interest rates

Business confidence has plunged to its lowest level in 10 years according to the NZ Institute of Economic Research's latest Quarterly Survey of Business Opinion (QSBO).

Coming hard on the heels of a similarly downbeat ANZ Business Outlook Survey from last week, the latest survey is likely to heap more downward pressure on the outlook for interest rates.

Already it is widely expected that the Official Cash Rate will be lowered to 1.25% (from the current 1.5%) by the Reserve Bank next month, after the RBNZ said last week that "a lower OCR may be needed over time"

With the mood of business now in its deepest funk since the global financial crisis and Australian rates seen as almost certainly being trimmed later on Tuesday, the prospect of the RBNZ having to go lower even than 1.25% becomes very real. The ANZ economists had already previously predicted that it will drop to 1% this year.

The detail of the NZIER's latest QSBO shows business confidence fell to its lowest level since March 2009, with a net 31% of businesses expecting a deterioration in general economic conditions over the coming months.

Arguably the more indicative measure in such surveys is what firms are predicting in terms of their own activity - and this is real bad as well.

A net 4% of businesses reported reduced demand in the June quarter just gone.

A net 4% of businesses also expect demand to fall in the next quarter – which is the weakest level since June 2009.

"These measures suggest a softening in annual GDP growth to below 2% over the second half of 2019," the NZIER said.

Surveys can be open to political influence in the sense that they can be seen as a 'protest vote' from businesses. And it's true that generally business confidence has been down since the Coalition Government came into power towards the end of 2017.

But when businesses talk about their own prospects and pulling back on future activity - that's when a downbeat mood can become a self-fulfilling prophesy.

And to that extent, the suggestion that the latest survey is pointing to GDP growth below 2% will now get the country's economists reshaping (down) their forecasts and there will inevitably be suggestions that the RBNZ will have to do more in terms of OCR cuts to restore the growth path for the economy.

ASB now sees OCR at 1%

The response of ASB economists on Tuesday was immediate, with ASB senior economist Jane Turner saying they now expect the RBNZ will cut the OCR twice more, in August and November, bringing the Official Cash Rate (OCR) to 1%. 

"We feel an OCR cut in August is a done deal and the timing of the second cut will remain dependent on domestic data, global events, the NZD and actions of offshore central banks."

ANZ senior economist Miles Workman described the outcome of the latest NZIER survey as "a dose of cold water".

"We are forecasting economic momentum to gradually lift from the second half of the year, but with headwinds persisting, we expect this to be relatively hard yards versus the RBNZ’s February expectation of a rapid bounce-back (last week’s OCR Review suggests the RBNZ’s forecast will be revised down).

"...We think the RBNZ will conclude that additional monetary stimulus is needed to address this, and are forecasting two further 25bp OCR cuts, in August and November." 

This is the full NZIER release:

The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows business confidence fell to its lowest level since March 2009, with a net 31 percent of businesses expecting a deterioration in general economic conditions over the coming months.

Adding to the negative news was a further decline in firms’ own trading activity, with a net 4 percent of businesses reporting reduced demand in the June quarter. A net 4 percent of businesses also expect demand to fall in the next quarter – the weakest level since June 2009. These measures suggest a softening in annual GDP growth to below 2 percent over the second half of 2019.

Manufacturing sector the most pessimistic

Sentiment remained the weakest in the manufacturing sector. Confidence amongst manufacturers fell to its lowest level since December 2008, with over half of manufacturers surveyed expecting economic conditions to worsen over the coming months. Deteriorating profitability contributed to the pessimism, with a net 3 percent of manufacturers cutting prices despite rising costs over the past quarter. This led manufacturers to pare back on hiring in the June quarter.

The pipeline of construction work has improved, but building sector firms’ expectations of output for the next quarter are subdued. However, pricing power has improved for firms, with more firms able to raise prices to recoup margin.

There are also signs retailers are finding it easier to increase prices, although over half of retailers still reported rising cost pressures. Retailers are reducing headcount, likely in response to softening demand and rising labour costs given the increases in the minimum wage.

Further weakening in profitability

Although profitability in some sectors is starting to show signs of improvement, overall profitability has fallen to its lowest level since March 2011. Firms have reduced headcount but are feeling more optimistic about investing in plant and machinery and buildings. We expect that as wage growth continues to pick up this should encourage more firms to invest in labour-saving technology.

Firms downbeat across most regions

The downbeat mood was broad-based across most regions, with West Coast and Tasman the exceptions. In particular, weaker demand in the Bay of Plenty is weighing on pricing power and hence having a negative impact on profitability amongst firms in the region.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Hmmmmm.... more of the same failing dogma is indefensible and without efficacy.

And to that extent, the suggestion that the latest survey is pointing to GDP growth below 2% will now get the country's economists reshaping (down) their forecasts and there will inevitably be suggestions that the RBNZ will have to do more in terms of OCR cuts to restore the growth path for the economy.

The response of ASB economists on Tuesday was immediate, with ASB senior economist Jane Turner saying they now expect the RBNZ will cut the OCR twice more, in August and November, bringing the Official Cash Rate (OCR) to 1%.

"We feel an OCR cut in August is a done deal and the timing of the second cut will remain dependent on domestic data, global events, the NZD and actions of offshore central banks."

Others have proffered something else:

Globalisation is dead and we need to invent a new world order

I say too bad .. Let These Businesses Fail !! If businesses have capital accounts which are taped out, require the Cash Rate at 1% AND have record low confidence ..

.. Well, those are CLEAR indicators that perhaps MANY businesses need to shut-up-shop. If you can't compete, move aside !! Let these zombie, fuddy duddy businesses go the way of the dinosaurs.

We should be celebrating the lack of business confidence, it should mean bad debt is being cleared out of the system to make way for the next business cycle. Instead of increasing interest rates to boost the capital accounts of entrepreneurs - banks and insiders act like heroine addicts and demand their next fix [cheap/free money] so their brittle bodies can feel normal for a bit.

Clean it up!

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I'm all for the RBNZ cutting rates as the economy dips just please leave those LVRs exactly as they are now.

the RBNZ said last week that "a lower OCR may be needed over time"
And how has that gone so far? Our economy currently sits at 93.7% capacity utilisation and we need more infrastructure growth not cheaper credit.
We neither have skill shortages nor insufficient capital in NZ, as highlighted by the Productivity Commission several times; in fact, a large share of skilled employment and capital is concentrated with low-productivity firms.

How long does it take, for the effects of a new government's policies, to reflect onto business confidence?

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How long does it take for a decade's chickens to come home to roost?

depends which government. as you look at the graph it is below for labour and above for national, so I take it with a grain of salt
better to look at GDP or the truckometer for what is happening

You deny there's a property bubble that's been building for years, so that wouldn't have anything to do with it. Even not implementing a capital gains tax hasn't helped prop it it so far.

Agri-exporters worry about US-China trade war, Zero Carbon Bill, labour shortage amid tightening immigration policy on work visa.

Tourism operators worry about declining Chinese tourists numbers and larger and larger infrastructure deficit.

International education providers worry about less and less international students given the declining reputation of all NZ tertiary institutions, and tightening immigration rules.

Every bizman worries about the incompetency of the current government and the opposition.

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Maybe we need a corrupt dictatorship like you have in China.

This just in: This isn't about China at all. It does, however, provide an excuse for people with a chip on their shoulder about China (e.g. racists) to bring it up for literally no reason at all.

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It doesn't take much to be called a racist these days.

The new in word for shouting people down, from the looks of it.

ahh godwins law at work

It's not really anymore though.

I came to delete this because it was uncalled for on reflection, but I'll leave it there for the sake of posterity. Please accept my apologies.

How on earth is criticising a government racist????
So I'm racist if I call the US government imperialistic and war hungry????

Too low to personal abuse. No matter Chinese NZer, or what race, everyone has freedom to say. You can have your different political opinion. Hit other shows low education.

. . yes , we have a group in government who were not expecting to be there . They got caught out badly , having made grandiose promises prior to the election , safely thinking that they'd not be called to deliver on them ..

And as for the Gnats , clearly they got it seriously wrong in picking Bridges as their leader , ought to have gone feral and picked Crusher Collins to go head to head with Taxcinda .

Not sure how putting a pretty, well er uh different, face on Nat's policy clownery would have made much difference. Might have been a touch more entertaining.

I don't know about that. It's not like they were forced into a deal with their coalition partners was it? It felt more like they were offering just about anything they could to get NZF to partner up.

International education providers worry about less and less international students given the declining reputation of all NZ tertiary institutions, and tightening immigration rules.

This certainly is a problem with the drive to run everything in education as a business rather than having universities being able to concentrate on 1) conducting research and 2) recognising legitimate mastery of subjects. Certainly not a problem that's exclusive to NZ, and NZ's educational institutes are still some way above the serious issues with blatant academic fraud that's common in certain other places. But NZ has problems indeed, caused by the use of education as a back-door rather than for legitimate educational purposes.

MAKE NZ Great Again!! ;o)

Compared to when? It’s been going down under Key, Clark, Shipley, Bolger, etc not to mention English, Richardson, Douglas et all

Dumbest thing about NZ is the tall poppie syndrome, you can also get shot down if you're patriotic, but people need to stand up for both Wisdom and Freedom.

.... Yes , yes and Muldoon got rid of the Superanuation in 1975 which, would have been worth $240 billion today (article - 2007) so would be loads more by now.. Whose to say we can't build that up now, without cheating our way to the top?

Article is from 2007 but something for discernment's sake:
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=104...

Well what did we expect ?

Business confidence only gets shattered when we have an openly-hostile-to business Government in power .

We are seeing what can only be described as delfationary trends , which no one dare call out

Rafts of unnecessary new/ and or increased taxes which add to the already crippling compliance costs .

Increased costs that are not welcome such as the levies on fuel

Misallocated spending on welfare instead of roads and other income -enhancing infrastructure

A likely drop in inward migration which will lead to reduced spending all round

A likely increase in borrowing costs with the new capital requirements for Banks

The disappearance by property investors from the market , who are looked upon like the turd the puppy did in the lounge .

"A likely drop in inward migration"

I'll take it. Next.

Talk about bias.
Business confidence dipped sharply in 2016, when National were in power. Was that all because of the government?

Boatman,

Once again, you brighten up my day with your totally blinkered views. In your very enclosed little world,everything is black or white. Of course this lot make mistakes,some from inexperience,some from politics and some from incompetence,just like every government.
I have never understood how people become so politically one-eyed as you are. I can only assume that it saves you from thinking too hard.
I would love to know what you believe re Global Warming.

GDP growth for last 3 quarters has averaged 0.52%, so is highly likely to drop below 2% annual next quarter. Far cry from the 4-5% Labour were fantasising about pre-election, but then every Labour govt in last 60 years has left NZ in recession - and even having inherited the best growth in generations this mob of low-achievers may not be able to buck the trend.

The tax receipt forecasts for the next couple of years are based on overly optimistic GDP growth. There will be fiscal deficits soon at this rate. I am not convinced the current finance minister, and coalition government are equipped to guide us through this economic slowdown.

Agreed. I always look at the Assumptions that Treasury publishes alongside the Budget, and they are simply heroic.....

They are completely unequipped and unqualified to guide the country, but once the deficits start ramping up they will simply bring in more taxes to try and plug the holes. Standard operating procedure for ruling socialists. The fact that they’ll destroy the economy in the process will be of no concern to them.

Damn I picked a shit month to go for finance for a house :P

Good luck mate, hope it comes through.

Congrats well done. Last month we freeholded a property that we owned as a leasehold. Its a good good feeling knowing we are not subject to the whims of the landowner any longer

I thought you were holding off buying a home from memory?

Can't hold off much longer I'm afraid - landlords want out and we have been offered a decent price for what is a reasonable pocket of land in West Auckland. The traffic situation out there makes me nervous, but I'm not getting any younger and the time for families etc is not too far away. Just hoping I don't miss the low point for interest rates given we settle at the end of July.

Well congrats and good luck, I hope it works out how you want. Time waits for no one I guess

Get yourself an e-bike and the traffic won't be an issue, and you'll save a fortune on your transport costs.

30km+ door-to-door is a bit of a push with the hours involved, sadly. However the connections are improving at both ends so never say never.

Just see if you can try one, make sure its a fast one (not speed limited), try smartmotion pacer. Life changing. You'll be richer, healthier, happier.

'Can't hold out much longer' - cue the Eric Clapton version for musical confirmation.....

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This may not suit the narrative but this isn't just us...

China: https://www.scmp.com/economy/china-economy/article/3013182/china-busines...

UK: https://www.theguardian.com/business/2019/apr/08/business-confidence-in-...

AUS: https://www.focus-economics.com/countries/australia/news/business-confid...

Wow, maybe it's BIGGER than NZ and the Govt here...

Anyone with half a brain can see this is a global problem and we are just a cork bobbing on that ocean..

. . Yup , I can see it as a global problem , and I have half a brain .... on a good day ...

Debts are being racked up around the world , growth is anemic , the only thing lacking is the CDOs and their ilk ...

... yet the central bwankers push ahead , forcing interest rates ever downwards ...

No, commenters are repeatedly assuring everyone it's all to do with NZ having a very slightly different flavour of left-leaning government to the previous one.

Or perhaps Jacinda Ardern and the Coalition will be responsible for bringing down the global economy.. You know the saying " When a butterfly flaps its wings....."

I might do some ghost writing for The Hosk.

Love the Hosk

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Empty vessels make the most noise

How dare you criticize he PM

NASA is eyeing up a nearby asteroid that contains enough gold to make everyone on Earth a billionaire.

Or to finally make everyone realise gold is a heavy shiny metal with a few useful properties, and that supply and demand is all that keeps gold worth much, flood the world with a half a million tons of gold and watch it become nearly worthless.. good for dental fillings if you like that look I guess, and good for coating electrical connectors. apart from that.. would make good fishing sinkers, and not be toxic like lead...

Haha, yes.. i thought it was just a foil to prevent nations from hoarding it.

Anyone with half a brain, and anyone not blinded by political bias.....

The parasites are killing the host.

Nah .... David doesn't seem to mind us turning up here all day every day...

It will take quite some time to rebuild our economies after nine years of National's false economy. Focusing too much on so called foreign investment which went in to non-performing assets basically the property market.
This in turn massively pushed up the cost of living and slowly squeezed out businesses who found it far more difficult to attract and retain staff due to the high cost of living.
I've seen so many business go under in Auckland because of this. The good news is that the cost of living is going down as house prices reduce but this is a slow process. If our Government really wants to help support actual business then they follow what the UK has done and reduce the Business corporation tax rate.
Landlords and related real estate businesses (Passive income companies) how ever should remain at the current tax rates to ensure that the cost of living continues to reduce to further help real businesses and wage earners.

Yes we can all see how Labour are rebuilding. Step 1/ tear into economy with industry destruction, higher tax, more regulation, low qualtiy spending decisions and a bigger public sector. Step 2/ eradicate key performance indicators wherever possible, kill useful infrastructure development in favour of left wing hobby-horses and mouth platitudes about transformation and working smarter and well being and various other meaningless buzzword bingo terms. Step 3/ blame anyone/everyone else for the terrible outcomes that have resulted from their dumb policy choices. We are currently at step 2, 3 is coming next year.

Very good points on false economy. Immigration, foreign investment and a housing ponzi.

News just in....RBA just lowered to 1%

Export economy growth rates all falling. GDP forecasts as usual were too optimistic. Why do they always say better next year?

The export economy is growing at 5 percent a year. Does that fact change your position Mike?