NZIER business confidence numbers show firms' optimism at its lowest level in seven years

NZIER business confidence numbers show firms' optimism at its lowest level in seven years

Acting Prime Minister Winston Peters is dismissing new weak business confidence figures, saying he forecast the drop on the night he chose the Coalition Government.

The latest business confidence figures from the New Zealand Institute of Economic Research (NZIER) show the number of firms expecting economic conditions to deteriorate in the second half of the year has almost doubled.

A net 19% of businesses expect a deterioration in economic conditions – more pessimistic than the 10% in the previous quarter.

This is the lowest level since 2011.

The NZIER Quarterly Survey of Business Opinion (QSBO) comes just days after ANZ’s monthly survey of firms’ optimism, which showed a net 39% of businesses are pessimistic about the year ahead – up 12 points from May.

National was quick to slam the Government for letting the numbers get this bad.

“It’s pretty damning,” opposition leader Simon Bridges told media on Tuesday.

National’s finance spokeswoman Amy Adams says the numbers aren’t surprising, given the Government has introduced “a range of anti-growth measures.”

She says these include industrial relations reforms, hiking fuel taxes, shutting down oil and gas, and lower investment in state highway networks.

When asked for his reaction to the numbers, Peters did not seem surprised to hear firms are becoming more pessimistic.

“I forecast that on the October evening when we were going to go for not a modified status quo, but a real change,” he says, referencing the night he chose to go into coalition with the Labour Party.

At the time, Peters gave a grim outlook for the economy saying there were “dark clouds ahead.”

He also blames businesses for the drop in confidence levels, saying “it’s not so much a perception, so much as it is an inbuilt bias of a minority of New Zealanders,” as business has lower confidence under the last Labour Government even when GDP growth was high.

Associate Finance Minister David Parker, who has previously referred to ANZ’s numbers as “junk,” is blaming the drop in business confidence on perception.

“Surveys of people’s opinion as to whether they like the Government is different to investment intentions and I think investment intention surveys are more reliable than essentially polling people’s political preference.”

The NZIER survey shows investment intentions have declined –  particularly for investment in new buildings, with a net 4% intending to reduce this type of investment.

Digging deeper

The NZIER data shows although views on their own trading activity – a good indicator of economic growth – remain more positive, trading activity in the June quarter still softened.

The proportion of businesses reporting higher demand decreased from 15% to 7%.

“Firms’ expectations of future demand also eased, with fewer businesses expecting improved demand over the next quarter. These developments point to softer economic growth in the second half of 2018,” NZIER principal economist Christina Leung says.

Weak profitability was a concern across most sectors, especially in the building sector.

“Furthermore, building sector firms are no longer optimistic about a rebound in profitability, with 14% expecting profitability to worsen in the next quarter.”

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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49 Comments

Interesting comments from ANZ this morning;

UNFAIR CRITICISM: Business surveys – well at least the ANZ one – have copped a fair bit of criticism of late. We’ve heard that they’re politically biased, get gamed by respondents or have a poor correlation with actual activity growth. Now it is probably fair to say that headline business sentiment (i.e. respondents’ views on the general business environment) can get affected by numerous factors, like the political environment, global themes or non-economic factors like succession planning that may not necessarily have much of a bearing on the economic cycle. But when it comes to what firms are saying about their own activity and desire to hire and invest, it is a case of ‘ignore this information at your peril’ as history has taught us that this has some valuable information on how well the economy is doing. Yes headline business confidence has fallen, but businesses are also saying that their own activity has cooled too. So all eyes will be on the NZIER’s QSBO to see if that theme of caution is replicated.

 

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Right, but the real question is whether or not confidence metrics are a leading or lagging indicator. Furthermore, it seems to me that National was 100% behind "bubble economics", which we know is all about confidence and stimulating consumer spending. The current govt has thrown darts at the bubble, so it is clearly obvious that confidence was going to fall. There's only thing we know for sure: in the mid- to long-run, bubble economics is ultimately destructive. I challenge anyone to prove me that I'm wrong.

Bubble economics. That’s a new one?!

What a crock. Business, and consumers do not transact without confidence in an economy. Only those that are on the fringe, financially illiterate, or just ill informed spend like there’s no tomorrow when things look shaky.

During my 40 years in business i have always found Labour governments distribute more of the proceeds from production to those who need it . Those people don't do surveys they simply spend what they get because they need to which is great news for small business .

The way I see it is both Labour and national indulge in bubble economics, labour just redistributes more aggressively during. Let’s not forget what happened to house prices the last time they were in.

Business confidence is about what businesses intend to do in the future, JC, so definitely a leading indicator.

Yet, from what I have read over the years the economy / companies seem to do as well or better under a (moderate) left Government than a right one.

The Q is then whether this "indictaor" has any real meaning or if it is a waste of time. For me I consider it a waste of time as there were already headwinds facing us when National lost the election. The Q is really is the loss of confidence any bigger or smaller than it was going to be anyway.

Generally business is better for me under a left wing government as they actually spend money and it circulates through the economy. I can see many reasons why some businesses will be concerned, especially with global markets and the impact from the external politics.

However I've noticed a slight slow down, and one colleague called me to ask what the environment was like as he'd noticed a slow down. If less work comes in and less contracts are being sent out that will put a damper on confidence. Maybe the indicator is reflecting the current slow down.

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So his riposte is that he predicted his choice to go with the CoL would screw up the economy and now that it has he has been proven right and isn't he clever?

(Personal abuse removed, Ed). Recessions (without hyperbole) lead to increases in suffering and death of people on societies margins as well as some who's jobs or businesses don't survive. His ego and Narcissism will have a body-count.

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No. My recollection is his claim was more that the economy was already weakening going into the election.

Then he went into his economic warnings. New Zealand First could not ignore the economic crisis and slowdown that was already here. A slowing housing market, nervous markets, declining consumer and business confidence meant the next government needed policies for economic resilience. 

Peters said he was saying all this now so that the media could not blame the coming downturn on New Zealand First – it was here already.

New Zealanders had come to view today’s capitalism not as friend, but as foe, he said. This needed to be resolved.

Peters later said that the next government would focus on regional economic development and resilience.

dp

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That's a bit dramatic. Recessions happen and we've had a very good run thanks to a long period of debt fuelled growth which has improved life for many... Life is far better than it was 100 years ago and we've had a few ups and downs along the way.

ANZ will of course stir the pot here because they hold more than their fair share of the loan notes that are outstanding from the 'Rock Star' days. It's a lot easier for them to blame the government for how deep the mess will be than to take responsibility themselves.

Well said. However, it's fair to say that Labour also don't have an issue with populism on all things economic.

Thanks David.

Having not seen this before this is really useful.. A 13% increase in the population in 9 years is phenomenal, Did someone post an open house party on the International Facebook page?

Why would that be phenomenal Nic? It represents a compound increase of 1% pa

On the other hand, a doubling of the average wage is quite amazing!

Also unbelievable!

I agree but in the figures by D Chaston it starts mean weekly wages 2008 $919 2017 $1'807

Something is not right with those numbers. I had a look and couldn't work out if they were household or individual numbers

Even so, assuming that is gross before tax income, we have gone from an annual figure of $48k which sounds realistic, to $94k. That is an 8% increase each and every year! which doesn't line up with any of the other economic stats that have been released the last 10 years.

dp

It would be interesting to see all of these parameters collated annually. It is easy to find each of these separately, but having the full benchmark series with past years comparisons, would be quite helpful. Maybe update this with a new column each October?

WOW, the improvements in the numbers from 2008 to 2017 are truely phenomenal.

One point I noted and that surprised me is that average wages doubled whereas houses prices and rent increased by less, I didn't expect that!

Surprising or unbelievable?
That figure must be wrong, wages did not double between 2007 and 2017.

https://www.stats.govt.nz/topics/income

Business confidence is a mix of perception and reality , and given the fact that the productive sector generates most of our economic activity , and pays most of the taxes , it may not be such a good idea to rattle business confidence.

Business confidence is a mix of perception and reality , and given the fact that the productive sector generates most of our economic activity , and pays most of the taxes , it may not be such a good idea to rattle business confidence.

Nonsense. Consumer spending is the key driver of economic activity. Don't try to suggest that NZ is in the same league as Germany or Japan.

and consumer confidence relies on job security .... Increasing Equity in property - increasing credit options

either way if business tighten - it will be problematic - and even more stimulation for monetary policy will struggle when the impacts of a falling dollar - below 65.5cents - increase in oil - fuel taxes and of course higher cost of offshore borrowing will limit any mortgage rate cuts - not to mention council rates increases above inflation

does feel like Winston has worked very hard to make sure his prophecy comes true!

"Increasing Equity in property - increasing credit options"

Based on your definition of Consumer Confidence, there is none.

house construction and the tax off that, namely gst would be a massive earner for the state. If this was to collapse then Peters may not look quite so smug.

industrial relations reforms: which ones?
hiking fuel taxes: fuel prices vary all the time and have been higher than this under national
shutting down oil and gas: fair enough, but how many businesses does this affect
lower investment in state highway networks: its only a handful of roads that National were planning to upgrade, unlikely to affect business sentiment

So a significant fall in the NZD TWI appears to be less beneficial than many would have expected and indeed striven for,or do NZ companies with an export bias weight the survey differently. Or are we simply a nation with a becalmed housing market and significant attached industry having a little tantrum

Seriously, Winston picked it?
Of course there is business pessimism because this government was made up of people who,have absolutely no idea on how to run a business let alone a country.
Who in this government has a sound record of running business?
Winston knew that things were going to deteriorate for the country, because he was going to go into government with two parties that were always going to run a country down.
You can defend this COL as much as you want but the reality is that they have done absolutely nothing positive for NZ since they have been in power.
It will deteriorate as they have people in power that do not know what they are doing.
KiwiBuild is a flop and this COL will be out at the next election as people are seeing how bad they really are!
“The Man” and the rightly thinking posters on here have said this all along.
The KiwiBuild announcement tomorrow is going to be very interesting indeed!

"You can defend this COL as much as you want but the reality is that they have done absolutely nothing positive for NZ since they have been in power."

Challenge accepted. Finding just one undeniably positive thing they have done so far:

Well they finalised a ban on the the use of plastic micro-beads in cosmetics. That is small plastic beads which would normally end up in the ocean and poison the fish and birds. https://www.beehive.govt.nz/release/microbeads-banned

As far as I can see, that makes you 100% wrong on that point. What else are you wrong about? How much research do you do before posting your comments, so as to not look a fool?

Jones’s, if that is the best thing they have done since they got in thru the back door, then God help NZ
No he couldn’t so we will vote them out but it will take forever to fix their stuff ups

I know you probably get this all the time in person.... but you’re a knob.

Good thing but its impact economically and on everyday living is 0.00000000000000000000000000000000000001% everything else the COLL have done is negative.

The way I saw it , when he said this last yr , was that he was hedging things, for himself..
IF... we enter a recession he will be able to plead innocence and will deflect any blame, as he saw it coming and warned all.
AND.. I'm pretty sure that he'll do this... He is one smart politician...
( In fact, he is playing those cards now )

Its amazing how some politicians think they have all the answers . Peters is just annoying .

We need to rid ourselves of this Government as soon as possible

Winston stated on election night

"We at NZ first believe that at economic slowdown, or correction is looming..."

Somewhere he made reference to the Rolling Stones song

You Can’t Always Get What You Want

life imitating art Winston.

This has been a long time coming, we have been deferring it with mass immigration, and cheered and pointed over there and cried "look, growth", while all the while our own people were slipping ever further down the food chain, priced out of their home towns and cities, waiting for something to trickle down only to find when it did, it was warm and yellow. Meanwhile, to keep the illusion going, we were flat out flogging off the family jewels for cheap consumables. Every single one of us knew this, even the deniers, the more they denied the clearer it was to me, they knew bloody well.
At least Winston was not afraid to voice it.
I just hope we do not turn to all out war again as we have in the past. Not holding my breath on that one.

All good across here in the sunshine.
Petrol $1.30
Elec 20c kWh
Building materials half NZ cost
New 4 bdrm house on land $400k
CGT on only 50% of profit after 1 yr.
Far fewer bludgers
Oh, and 300 days of sunshine per yr.
Bail out now fellow Kiwis while there’s still seats in the available lifeboats. Let the Socialists and dependants suffer their own self imposed fate.

Where are these 4 bedrooms on land?
CGT on 50% after 1 year is not great
You have more than enough bludgers in Oz, you know that.
Kiwis can’t get financial social welfare in Oz so why would the ones in NZ that are doing well go to Oz?
The ones that aren’t doing well in NZ won’t do well in Oz either

Looking at above remarks, I am a bit surprised. I thought readers of this website were brighter.

1. Governments in democracies do not control the economy, nor its cycle.
2. China is leading force on NZ and Australian markets and particularly its housing market.
3. China is contracting its QE and money supply and not bailing out defaults in local government, nor corporate.
4. China Yuan is crashing.
5. (4) relates to debt and trade wars with USA
6. NZ is an export commodity trader and commodities are priced in USD, which is rising.
7. In a FIRE economy which NZ has become, RE is crucial. Chinese have been withdrawing or reducing investment in RE here for 2 years now and borrowing is down. This means supply of money to economy is expanding less fast than 2 years ago. According to Steve Keen, that is enough to cause a recession.
8. People are repaying on their mortgages. Cutting borrowing growth further.
9. personal debt to GDP in NZ has never been higher. This is a lead indicator for a debt crisis.

Note, also, Aus analysts scrambling to revise their downward forecasts over there. That will happen more frequently in NZ also over coming quarter. Labour forecasts for their fiscal position based on 3% GDP growth far too high and wishful thinking. 2.5% this year and 2% next year far more likely, blowing a big hole in their revenue forecast "new" model used by Treasury

NZ economy is going down under Labour. NZD is turning out be a dump dollar in financial centers such as Singapore, HK etc. Sooner this coalition fails the better for the sake of NZ economy, business confidence, capital inflows, jobs etc. Free loaders voted for this unwise coalition regime and rest are suffering. Wake up NZ kick these incompetent leaders out.

All industrious people voted National. Unfortunately the emotional, the freeloaders and their manipulators outnumbered them and formed a coalition of the stupid.
It was utter madness not to ensure that the party with the most votes got to form the coalition government.

It would be good to think we can raise the level of comment somewhat more than the above two.

Doesn't matter who is in the wheelhouse, the sinking is inevitable. It's why Trump, it's why Brexit, it's why refugee swarms.....

But you go on believing that the blue deckchairs are so much better than the red or the blue. The truth is they're all going to get wet, and the colour is orders-of-magnitude irrelevant.

Sigh. Our only hope as a species was to get intelligent enough quick enough to keep ourselves from wiping ourselves out. Seems we didn't make it....

"Our only hope as a species was to get intelligent enough quick enough to keep ourselves from wiping ourselves out"
However much I agree with that, I hope against hope our smarts win out, I have grandchildren.

Ham& Eggs again for breakfast powerdownkiwi? Best way to power down? Just pull the plug on yourself.

I wonder how Labour managed to manipulate the rest of the world, though. Pretty impressive, don't you think?