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Latest NZIER Quarterly Survey of Business Opinion suggests GDP could fall below 1% later this year; RBNZ likely to be forced to cut interest rates further

Latest NZIER Quarterly Survey of Business Opinion suggests GDP could fall below 1% later this year; RBNZ likely to be forced to cut interest rates further

Yes, businesses really ARE that gloomy and the consequences are likely to be yet more interest rate cuts from the Reserve Bank.

The latest Quarterly Survey of Business Opinion (QSBO) from the New Zealand Institute of Economic Research has produced results that suggest GDP annual growth may slip below 1% later this year.

Another awful survey result (and this one in probably the most influential survey) follows hot on the heels of Monday's ANZ Business Outlook, which showed business confidence at levels not seen since the Global Financial Crisis.

The, frankly terrible, results in both the ANZ and now NZIER surveys will give the Government indigestion and will increase the pressure on it to free-up the purse strings and spend some money to stimulate activity.

And it will force the RBNZ to redouble its efforts to stimulate a now seemingly unwilling economy.

A further Official Cash Rate drop by the Reserve Bank next month (from the current 1%) now seems locked-in.

The QSBO showed a further drop in overall business confidence in the September quarter, with a net 35% of businesses expecting a worsening in general economic conditions. This is the weakest level since March 2009.

More significantly, there was also a decline in firms’ own trading activity, which is a better indicator of demand in the New Zealand economy.

NZIER said the net 11% of businesses reporting that demand fell over the quarter brings this measure to its weakest level since September 2010.

"The result suggests annual GDP growth will ease below 1% later this year," NZIER said.

Bring on the cuts...

ASB chief economist Nick Tuffley said the QSBO survey "flags the risk" that the economy lost further momentum over the third quarter of the year. 

"...And, with inflation indicators also softening, the need for further stimulus is greater.

"We now expect a further 50bp in total of OCR cuts, 25bp in November and now 25bp in February, taking the OCR to a fresh record low of 0.5%," Tuffley said. 

"After the decidedly mixed response to the 50bp OCR cut, we expect the RBNZ will revert to smaller 25bp steps."

Kiwibank economists now also see the OCR hitting 0.5% - but they still think there's a possibility there will be another double cut. As Kiwibank chief economist Jarrod Kerr puts it, business confidence is "crumbling".

"We had assigned an uncomfortably high 40% probability of a move to just 0.5%. The confidence surveys have tipped us over the line," he said.

"There’s now a 60-70% chance of a cut to 0.5%, in our opinion.  And we therefore assign another uncomfortably high 40% probability of a (banking capital requirement) cut to just 0.25% in early 2020.

"We must not rule out another 50bps cut in November. The RBNZ have shown us that if they think it necessary, as we do, then they’ll deliver it up front. Both the RBNZ and RBA [Reserve Bank of Australia] could be at 0.5% before Christmas."

ANZ senior economist Miles Workman and economist Michael Callaghan noted that the results of the NZIER survey were actually weaker than those in the ANZ survey released the day before.

'Not firing on all cylinders'

"Today’s release suggests the economy continued to splutter in Q3 and probably won’t be firing on all cylinders come Q4 either," they said.

"Firms are now reporting that sales (demand) are an increasing constraint on activity while capacity and labour constraints are easing. And with economic growth already running at a pace consistent with waning inflation pressures this will put the RBNZ on notice.

"We think that by November, the evidence will be clear that a significant growth rebound is not on the horizon, and that the RBNZ will cut the OCR once again.

"We have pencilled in two follow up cuts (February and May) which will take the OCR to just 0.25%. While the survey suggests that the outlook for Q4 is a bit brighter, the RBNZ will be wary that the best activity indicators from the QSBO are based on past activity, rather than expectations of the future."

This is what the statement from NZIER said on Tuesday:

The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows a further drop in business confidence in the September quarter. A net 35 percent of businesses expect a worsening in general economic conditions – still the weakest level since March 2009.

There was also a decline in firms’ own trading activity, which is a better indicator of demand in the New Zealand economy. The net 11 percent of businesses reporting demand fell over the quarter brings this measure to its weakest level since September 2010. The result suggests annual GDP growth will ease below 1 percent later this year.

Manufacturing sector remains the most pessimistic

Although there was some improvement in sentiment amongst manufacturers, the manufacturing sector remains the most downbeat of the sectors surveyed. The continued weakening in both domestic and export demand continues to weigh on profitability in the manufacturing sector. The continued uncertainty over how the trade war between the US and China will play out is dampening manufacturing demand globally. We expect this uncertainty will remain a headwind for the manufacturing sector over the coming year.

Meanwhile, there are signs construction demand is slowing. Building sector firms have lowered their output expectations, while the measure of architects’ activity in their own office points to a reduced pipeline of residential and commercial construction. This is consistent with the drop in firms’ intentions to invest in buildings over the coming year.

Retailers are also more downbeat in the face of weaker demand. Profitability in the retail sector is at the weakest level since September 2009, as retailers struggle to pass on rising costs by raising prices.

Firms more cautious about expanding

The combination of intense cost pressures and weak pricing power continues to weigh on profitability across most sectors. This is making firms more cautious when it comes to hiring and investing. A net 10 percent of firms cut staff numbers – the weakest level in this hiring measure since September 2012. Added to the cautious tone was the decline in investment intentions for buildings and plant and machinery, with both measures reaching their lowest levels since September 2009.

Firms downbeat across all regions

The downbeat mood was prevalent across all regions, but the provinces were particularly pessimistic. Over half of businesses on the West Coast and Nelson expect a deterioration in general economic conditions over the coming months.

As the graph below shows, the drop in firms’ own trading activity suggests further slowing in the economy.

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30% of the gloominess is attributed to external factors such as trade war etc.

70% of the gloominess is due to incompetent governance!!!


So the previous government, which turned NZ into a hub for foreigners looking to speculate on local assets, along with its use of low-skilled migration and low-value business activity (PTEs, dollar stores, takeaways, REAs and the count goes on) to prop up the GDP, in your opinion, was a beacon of 'competent governance'. Way to go!

@advisor .... you're delusional mate ! My personal wealth grew by 400% during John Keys tenure , we paid off our mortgage , my young adult children all got a tertiary education and all found well paid jobs .

My wife and I were able to save , about 40% of our income as it is surplus to what we need

AND ........ I did not buy or sell a single residential property investment .

It was really and truly a rock star economy , and almost everyone is better off today , with the exception of people unwilling to work, people with substance abuse problems and idiots borrowing money from loan sharks and those with debt up to their eyeballs............. and that pain is self -inflicted , the banks and finance companies did not hold a gun to your head to borrow money


"almost everyone is better off today , with the exception of people unwilling to work, people with substance abuse problems and idiots borrowing money from loan sharks and those with debt up to their eyeballs"
So in your opinion every poor person is either a useless piece of **** or a complete idiot?
You said you paid for your kids' tertiary education. What about the people who aren't lucky enough to have parents who can afford that?
What about a whole generation who's struggling to save enough money for a deposit?

so it's all about boatman and an infinitesimal point in time?

Boatman,without some context,your gloating is worthless,for all we know,you might have won Lotto,your wife might be a 'ship girl"...
My personal wealth in the sharemarket has grown more in the last 2 years than any where has yours come from and how exactly have things changed in the field that you created all this wealth that makes you so negative??


What a load of crap boatman or shall we call you Hosking?

Such a boomer post

Are you going to tell me the New Zealand people's party will be the solution?

The full name of the party will be

New Zealand People's United Party.

And Yes. The party will sit on top of capital and the other way around.

"The party will sit on top of capital and the other way around." - You wot mate?

Will this party be registered wei, the extra option could be interesting? What level of support have the founding members found within the NZ community? How many members do they currently have lined up?

We've already told you we don't want the PUP pissing on the carpet and chewing the furniture..

The fact that firms' own trading activity is falling is a solid indicator. It's a rare business that doesn't have today's sales, the orders pipeline, and COGS as a percentage of gross sales, available to them overnight. These are not fudge-able figures.....


"Maketu Pies has gone into receivership after 37 years in business and have 40 full-time and part-time staff. They were sold in Countdown, New World and Pak 'n Save supermarkets and were served on Qantas flights"

When Kiwis don't even support their pie shops any more, there must be trouble ahead!
Tell those 40 employees that 3.49% fixed for 2 years will see them right....
But look on the bright side! There'll be cheap properties for sale to investors in the small town of Maketu tomorrow ( population 1,047; guess who the major employer used to be?!).

Must say their pies were yum and not overpriced.

Clearly not yummy enough and underpriced.

More than likely screwed down by our supermarket duopoly.

Nice pies you've got there. Pity if we happened to run with another supplier for 70% of your rate....but no pressure....

Makateu Pies are typical of a kiwi business that went cold and stale...hasn't invested in its future by investing in technology or a decent supply chain. Credit where its due, they made a certain product for a certain market and stuck at it for 3 generations. But Patrick Lim (?) the owner of the award winning bakery in Bethleham was miles better at his pies, and I bet he eclipsed Makateus Pies because from what I saw of both operations he innovated, invested in newer equipment and had publicity from all his awards, Makateu did not. I must admit I bought plenty of both brands during my time in BOP so I think I'm qualified....

Some valuable advice to the Aussie government:
Large infrastructure has quite a long lead time, and we're already facing capacity constraints, so we're looking at what else we can do.
EY's modelling shows a billion dollars' worth of maintenance and repair work, like a fresh coat of paint on a hospital, would create more than 5,000 jobs and inject an extra $800 million into the economy

This, my fellow readers, is the quality of advice you get from global consultancies when an economic experiment called 'GDP' goes haywire and becomes the 'be-all end-all' measure of socioeconomic success.

yeah, forget printing money, just paint it! What a day.. everywhere I look I see imbeciles.

If you want to see something ridiculous have a look at this link. Somehow Wellington has managed to approve less consents for dwellings, and at the end of an article there's the discussion of how much intentional difficulty WCC is creating. Great news during the local election.

So basically handouts with extra steps?


it looks like even school students started to understand that further OCR cuts will have very little to no-positive impact on the economy.... But they are "inevitable" for some reason.

To make government debt cheaper, so government (and local councils) can borrow more and spend more? The most important function of RBNZ is to serve the NZ monetary system. The "impact of economy" is not the main direct objective as there is very little relationship between the OCR and "economic performance".

So why don't they clearly articulate why they do those cuts? Without doing this they keep people as a uninformed herd (I 'm so sorry for this comparison but this is what comes to mind) with devaluating NZD s in their pockets

An OCR cut isn't going to do much, and it's really over to Central Government to take any action necessary. I'm waiting on the C35 data on 24 October. That will tell us where everything is going in relation to mortgages.

Ok, once and for all, the cuts are much less about the price of money and much more about external devaluation. A lower exchange rate imports inflation and growth, the cuts are all about maintaining, and ideally increasing, export competitiveness.

They are also about trying to manage the increasing default rate on mortgages. Financial stability is one of the drivers. This is a benefit to both financial stability and engaging in the currency war.

Is the default rate on mortgages climbing or is that just your bias? It has never been lower from what I've seen.

I believe the issue is your bias, and that you did not look up the C35 figures. Between March and June of this year the repayment deficiencies divided by scheduled repayments went from 1.97% to 2.71%. There's a big difference between never been lower and rapidly increasing. Again I am waiting for the figures to be published this month so see if the OCR changes are having an impact.

That is a single quarter in a series that goes back 5 years. I have zero bias, I just asked for evidence. I agree, if that keeps climbing that would be evidence however you need a longer series and more data,

..interesting stuff thanks dictator (out of my vision). That's a 37% increase...those new figures will be interesting

TK - Roger Kerr keeps saying that the kiwi is about to explode, just needs a few ducks to line up.....
All I see are black swans.

I think the TWI has further to fall, still well above it's long term average. Like I said, RBNZ cannot afford to have an over-valued currency because NZ has low public debt and high (comparitive) real yields.

Time for governments to take over and stimulate with fiscal policies. Monetary policy has had its course.

The Quantity Theory of Credit

I warned during the 1990s that fiscal expansion funded by bond issuance was likely to crowd out private demand..

I suggested in numerous publications that the central bank purchase non-performing assets from the banks to clean up their balance sheets, that the successful system of ‘guidance’ of bank credit should be re-introduced, that capital adequacy rules should be loosened not tightened, and that the government could kick-start bank credit creation and thus trigger a rapid recovery by stopping the issuance of bonds and instead entering into loan contracts with the commercial banks (e.g. Werner, 1998).

So the effect of bank credit depends on its quantity and quality — the latter defined by whether it is used for unproductive transactions (credit for consumption or asset transactions, producing unsustainable consumer or asset inflation, respectively) or productive transactions (delivering non-inflationary growth). Credit used for productive transactions aims at income growth and is sustainable; credit for asset transactions aims at capital gains and is unsustainable. When credit creation slows after an asset bubble driven by credit for asset transactions, the ensuing fall in asset prices, capital losses and non-performing loans can easily trigger a banking crisis (banks have less than 10 per cent of equity; a drop of their asset values by little more than 10 per cent implies bank insolvency).

Closer to 15% equity now in most places around the world, based on book value using historical property valuations at time of loan sale..

But I suspect rbnz and even jacinda know NZ property is too big too fail, plays too much of a role in everyday kiwi spending and cashflow/liquidity.

Hence, 1. No GCT.
2. Big OCR cuts ,

Cycle the debt through new buyers with good incomes, maybe first home buyers who are more likely to hold tight in a downturn and Reno to add value to the banks security. Or even us less new buyers who have very low % debt and feel we're missing out if we can borrow at 3% to earn at 6% (welly apartment, secondary cities etc).

Either way you'll see they have all the levers and that's why we keep seeing what we are seeing

said the owner to the jockey on the exhausted horse.

Who knows ........... Government may be forced to stimulate the economy by building roads and infrastructure ........ it would not bad thing at all

A recession would be a painful yet effective tool in correcting our broken markets. Scores of unproductive enterprises that are a drag on our finite resources, capital and skills need to go.
If our industries and policymakers play their cards well, we could get a do-over and build ourselves a resilient economy on modernised infrastructure and productive resources.
Unfortunately, our two major parties don't have a leader capable of steering the nation through all of this currently present in their ranks.

Not going to happen when associate minister of transport Genter is threatening to bring down government if they allow roads to be built contrary to her vision:


And just where would the capital come from? Given your right-wing ideology,you surely cannot want the government to relax its debt to GDP ratio?

Officially in recession by the 2020 election?

From rock star to wreck in 3 years.


That's what happens when you come off the crystal meth of property speculation driven by foreign capital inflows.

So the big question is what's next ? Clearly the OCR cuts are not working and we all know the definition of insanity....

you can see where the money is going now that property prices are flat, interest rates are next to nothing
we have a new bubble coming
The NZX 50 increased 25.12% since the beginning of 2019

All that we need is to get thru October. September gave the market a small bruising....
An interesting article for Interest would be to try and document how much cash is increasingly being freed up to 40 year olds by inheritances as the boomers start to kark it in increasing amounts. I have several acquaintances who suddenly don't know what to do with large windfalls as they probably rightly believe property has done its dash for a decade or so.

By cutting the OCR more than expected the RBNZ indicated a low confidence in the NZ economy, which led people to express low confidence in subsequent surveys regarding the NZ economy, which will cause the RBNZ to reduce interest rates...

...and so the pattern perpetuates.

Maybe it is entirely perceptual and so to increase confidence in the NZ economy the RBNZ should raise interest rates?

And if confidence is low now, what happens when the OCR has a negative sign at the front of it?

NZ has the third highest minimum wage in the world, right after Australia and Luxembourg. It is a little bit strange that NZ minimum wage is so high (relative to the price of same commodity in other countries), yet in terms of average per person annual income it is the 27th country in the world.
NZ is doing phenomenally well given its economic capabilities (i.e. agriculture, education, Tourism as what brings money for the outside, and house related activities (e.g. consturction) and car related activities as what makes money inside NZ (government services is another obvious money maker, but since it can only exist from real tax by private sectors, i have excluded it).
To me the fact that NZ is not increasing its GDP is what to be expected from the economic capabilities of NZ. It actually is surprising when this is not the case.

Correction; our minimum wage was high before the NZD plummeted - we've all had a 15% pay cut in the last 2 years. Economics ultimately laughs at people's attempts to vote themselves rich.

The motorbike is running on reserve, and spluttering.

Kick-starting suggests false diagnosis.


The thoughts from Architecture offices of a slowing pipeline align with my own views as expressed o this website. This will flow through into building consents some time in the next 6 months

Growth following credit impulse into the toilet

Biggest factor in low confidence is self inflicted. Our businesses have failed to invest in competitive edge to get through the lean times, its nothing to do with government, its just a convenient excuse to distract from the true causes, poor business leadership. Shame on you NZ Inc. On slackening demand in the construction sector...what do you expect, everyone is waiting for another rate cut before financing. My mom has put off her renovations yet again and is courting a couple of increasingly anxious builders in anticipation of them panicking and dropping their charge out rates through the floor...she's become quite ruthless in her later years!

Sorry, but growth is exponential. Doubling-time applies. Bit like trying to turn off the tap, filling a wine bottle. The per-second-per-second acceleration beats you every time.

The next doubling (can you visualise a doubling of Auckland, let alone every NZ city?) is impossible, and you'd need to be doing it within 20-30 years to get the growth rate everyone assumed was normal. ( It wasn't, it was a temporary state of affairs and it's over). Doesn't matter how many want to re-do their ensuites; it ain't coming back.

I may have had too much of CannaSouths free samples to grasp what you are saying there my friend...please elaborate...

I think what he's saying is that unending exponential growth in physical production/consumption/population on a finite planet (or small island nation as per NZ) is not only unsustainable but defies natural laws.
E.g. If the number of bacteria in a petri dish double every hour (via binary fission) and the petri dish is full of bacteria after 24 hours (and they then all die due to running out of food/space etc). At what time is the petri dish half full of bacteria? 23hours. So with half of their resources left they are only 1 hour from doom. That's likely humanity at this point in time.

Most people think of growth and percentages as linear. It's a fatal mistake.

LOL "The result suggests annual GDP growth will ease below 1% later this year," NZIER said.

What a joke the NZIER survey has become.

The last 4 quarters of GDP have been 0.4 0.6 0.6 & 0.5 =2.1 (Change from same quarter previous year

The Sept quarter is finished and early data suggests GDP growth between 0.4 and 0.5.
Take the lowest 0.4 and Annual GDP will still be at 2.1%
So is it going to be minus 1.1 in the Dec quarter to get down to 1%? NO it isn't

Maybe they are talking about annualized GDP, ie <0.25% for quarter.

ANZ New Zealand Weekly Focus | 7 October 2019 re NZIER report.

But the attention grabber was businesses’ reported activity levels, as this correlates well with GDP. It came in very weak, and like the many other indicators we monitor, suggests the economy certainly wasn’t firing on all cylinders in Q3. Experienced domestic trading activity fell sharply in the quarter, from a net 4% of firms reporting a decrease in their own activity in Q2 to a net 11% in Q3 (figure 1). This suggests some downside risk to our expectation that annual GDP growth will pick up slightly in Q3 (from 2.1% in Q2 to 2.2%).
In fact, at face value it suggests annual growth close to 1%! Perhaps GDP revisions will make it so (that has to be more likely than a -0.8% quarter at least).