Businesses remain pessimistic about the economy with cost pressures intensifying, according to NZIER

Businesses remain pessimistic about the economy with cost pressures intensifying, according to NZIER

The usual slump in business confidence that follows a Labour-led government taking office hasn’t yet blown over.

Businesses remained pessimistic in the first quarter of the year, according to the New Zealand Institute of Economic Research’s (NZIER) quarterly Survey of Business Opinion (QSBO).

A net 9% of businesses expected worsening economic conditions over coming months – slightly less than the 11% in the previous quarter.

Yet firms’ expectations about demand in their own businesses continued to hold up, with a net 15% reporting a lift in the quarter.

The NZIER says the general feeling of pessimism was pervasive across most regions, with businesses in Manawatu-Wanganui, Marlborough and Gisborne particularly downbeat.

It says continued weak profitability appeared to be a key contributor. Businesses didn’t see this improving.

“Cost pressures have intensified, and businesses have not been able to fully pass these on in the form of price increases,” the NZIER says.

“Confidence in the retail sector has been particularly weak since the new Government took office.

“This likely reflects that a large proportion of its workforce is low-waged, which means retailers are more likely to be affected by the lift in the minimum wage and the abolition (for businesses with greater than 20 workers) of the 90-day trial for new employees.”

The NZIER goes on to say: “With labour costs rising and labour shortages still acute, firms have become more circumspect about increasing headcount. The easing in hiring intentions suggests slower employment growth over the coming year.

“In contrast, investment intentions for plant and machinery have rebounded with a net 17% of businesses indicating they plan to increase investment in plant and machinery over the coming year.

“With labour costs increasing, firms may be looking to mitigate cost pressures by investing in labour-saving technology.”

Tackling the issues of low business confidence in a speech to the business community in February, Prime Minister Jacinda Ardern said she wanted "perception to meet reality".

She highlighted the fact that businesses were still upbeat about their own operations.

"And given that’s the marker that bears the most correlation to GDP growth, then I think we have some cause to feel at least comfortable with those numbers," she said.

Ardern also said forecasts around GDP growth and Crown debt were good, despite businesses "still carrying an umbrella".

NZIER quarterly survey of business opinion

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NZIER business confidence
Source: NZIER

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10
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I am sure no one wants NZ to be the next Greece.

But the current government seems lead NZ to become the next Greece day by day.

Like Greece did previously, NZ lives beyond its means, but that happens regardless of the govt.

Like Greece did previously, NZ lives beyond its means, but that happens regardless of the govt.

I remember Davis Seymour joking during the election debates that “NZ can’t afford this election to go on any longer, with all the promises being made we will go broke” or something to that effect. While I think that’s an over exaggeration it’s not completely untrue, lolly scramble politics leads us to live beyond our means and back us into a corner with no easy escape. It’s a shame that prudent economics isn’t as attractive as freebies.

Unlike Greece , we produce food .......... lots of it .

Greece produces almost nothing , it has tourism and olive oil , and lots of demonstrators with time to march and protest around the Syntagma Square instead of doing something constructive .

No, unlike Greece, NZ has its own sovereign currency.

Not to mention the dread curse of being in the EU. Which meant that German and French banks leant money recklessly to the silly Greek government, pushing up house prices and encouraging poor decision making.

Couldn't happen here, of course. Oh, wait a minute, our government can borrow at the same rate as the biggest government in the world, is that due to Chinese money, I wonder? House prices were not pushed by Chinese money at all, I'm led to believe. Again, we don't have foreign owned banks running the show either, so she'll be right, honest.

What happens if China has a stumble and their money flees NZ?

Chinese money flees NZ: house prices go down; temporary reduction in house building which restarts when builders realise land prices are low so they can build cheaper homes. Indian, Korean and Japanese money rush in? Actually Chinese economy and NZ are not critically intertwined like say NZ & Australia. The things we buy from China can be bought at very little difference in price from Taiwan, Vietnam, India, Indonesia, etc. What we sell to China is usually with little processing: lods not furniture, milk powder not fancy cheese so it can be sold on the international market (obviously a smaller market with no China).

To associate lack of confidence with the new govt is rediculous. The little puff that blows from govt pales when compared to the hurricanes we see building offshore.

I think businesses not only have a problem with the government's policies but more so about the rate at which these policies are being implemented. There have been such significant regulatory changes in the investment and employment landscape in a short span from a government desperately trying to retain the windfall gain in approval ratings from a change in their leadership.
I am afraid Labour's power posing is not leaving enough headroom for the business owners to work their way through the sea of changes.

rastus, I'm not sure that's true. On the graph provided, scale the cursor back to 2005, you will see the confidence line mostly above 0 in the last 9 years (National) and mostly below 0 before 2008 and after Sept 2017 (Labour). There seems to be a clear correlation

Interesting that this late in the cycle businesses are still having trouble raising prices.

not surprising when house prices are sky high, and the only inflationary pressures are being created by both central, and local government. If they - Auckland Council, (left leaning) and the CoL continue down this path I wouldn't be at all surprised to see deflation creep in.

Well it's hardly surprising businesses are not optimistic about the future. Wages rising from $15.75 to $20.00 in 2020 is a 27% increase. That is a truly significant increase in expenses. Add fuel taxes = expenses, constatnly increasing rates and insurance costs...

Don't forget the potential crack down on foreign workers. That must have shaken a few businesses whose business models depend on importing low-skilled and cheap immigrant workers.

See Ritchies and 2Degrees for recent examples of this.

While Spark manages to run a call centre successfully in NZ, 2Degrees is citing high turnover and an inability to attract local workers. In pure coincidence, 2Degrees wants to import workers and pay them very little over minimum wage, while Spark pays comfortably more.

These seem like problems of management rather than viability.

12
up

How can any Business be optimistic in the face of such an utterly shambolic Government ?

Since they formed this oddball coalition out of a ragtag bunch of losers , they have stumbled form one crisis to the next .

What did we expect ?

All we have heard about from them , is raising more and new taxes to pay for pet projects .

A Prime Minister who does not know that an excise is a tax ?

And why does every sentence they utter start with ............ "In the past 9 years ..............." when they are asked a straightforward question ?

Certainly not a sign of a forward or future focused administration .

The irony in some of these posts...Wow.

The emperor is wearing no clothes, and the bits are showing, ugly as they are!

I loved this piece which says it all :

http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=12...

The look on Robertson's face tell's the whole story

Ardern and Robertson both look like they are both so startled that they don’t know what to say!
Where is Winston our next Prime Minister?
He could well be the saviour that we need to assist Ardern and Robertson cope with the crap!
The reality is that there is going to be an increased disparity in wealth between the haves and the have nots under this coalition.
The extra taxes will only make things more expensive for the people who are at the bottom.
The renters will,end up paying more if they continue to penalise the landlord, the petrol tax will hit the poor the most and the increased minimum pay policy will,ensure that many of the lower paid will be out of a job.
Socialism is not going to work for this motley lot!
Come back John Key, they are in dire need of help!

State employees will do well. Shielded from redundancy when a downturn arrives. Inflation adjusted pensions. They will do alright.

Yes, National would get in there and help the poor by lowering the top tax rate again, cutting real funding for health, education and justice. Then make up a slush fund to outfit the new office by selling off some more state assets.

Labour have no idea how to run a country. No business experience. Nobody there has any experience in asset stripping, insider trading or fixing markets. And we let them run the place!! What are we thinking?

/sarc

"Business confidence had fallen sharply in the December 2017 quarter in the wake of the new Labour-led government taking office, and this pessimism has carried over into the first quarter of 2018,” said NZIER principal economist Christina Leung.

The headline confidence reading, however, is more pessimistic than firms' own trading with a net 15 percent experiencing increased activity in the March quarter versus 10 percent in the prior quarter and a net 16 percent anticipating more demand in the next quarter versus 17 percent in the December quarter.

“It’s more about sentiment than actual activity,” said Leung.

By OECD standards, New Zealand has performed well economically over the last 3 decades and being one of the most open and free market economies has been at the core of that. It’s not surprising that there’s some pessimism out there when business starts to see the Government sending messages out there about things like limiting foreign investment (property mainly) and immigration and increasing minimum wages as whether well intentioned or not, they create nervousness as they are seen by some to challenge the free market model. Possible populist moves and not well thought through in there implementation. As a consequence, I think business is playing a ‘wait and see’ game at the moment.

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