NZIER Quarterly Survey of Business Opinion shows businesses have started 2019 more downbeat about the economy; economists see survey results pointing to fall in interest rates

NZIER Quarterly Survey of Business Opinion shows businesses have started 2019 more downbeat about the economy; economists see survey results pointing to fall in interest rates

By David Hargreaves

It's official - businesses really are in the dumps and the downbeat view is likely to lead to the Reserve Bank cutting interest rates sooner rather than later.

The latest NZIER Quarterly Survey of Business Opinion has backed up the results of the ANZ's latest Business Outlook survey showing New Zealand businesses to be very downbeat about their prospects. The New Zealand dollar dipped again on the news, falling from US68.05c to US67.85c immediately after the NZIER survey was released at 10am on Tuesday.

ASB economists immediately responded to the survey results by picking that the RBNZ would cut the Official Cash Rate in May. They've brought forward the expected timing of that move from a previous forecast of August and they say the survey results point to first quarter GDP growth this year of just 0.4% against a previous forecast of 0.8% from the RBNZ.

ASB senior economist Jane Turner said the results of the NZIER survey were weaker than expected. 

"Businesses reported that activity over Q1 was weaker than over Q4, and this indicator is consistent with quarterly GDP growth of just 0.4%. 

"Business confidence measures were also bleak, with expectations for activity to improve over the next 3 months plunging to the lowest levels since the Canterbury earthquakes in 2010 and early 2011.

"Businesses continue to report a decline in profitability, with cost pressures outstripping selling prices.  While firms continue to state their intentions to lift prices, inevitably a smaller share of firms seem to be able to subsequently lift selling prices in the next quarter. 

"We now expect the RBNZ to cut the OCR 25 basis points in May, followed by a second cut in August," Turner said.  

Kiwibank chief economist Jarrod Kerr and senior economist Jeremy Couchman noted that a net 1% of firms experienced a deterioration in trading activity over the first quarter of 2019, which points to slowing GDP growth over this period. Only a net 7% expected an increase in their own trading activity in the coming quarter, that’s well below the survey average of 15%. This, they said, points to disappointing GDP growth over the second quarter of the year. 

"For the RBNZ the reverse in confidence is one thing, but to the deterioration in firms’ expectations for their own trading activity is much more of a concern. Within the context of a gloomier global outlook and central banks around the world stepping back from policy tightening, today’s business confidence report supports a local monetary policy response.

"In our view we think the RBNZ will deliver just that as part of its May Monetary Policy Statement (MPS) with a 25bp cut to the OCR, followed by another in (June or) August," Kerr and Couchman said.

ANZ senior economist Liz Kendall and economist Miles Workman said the survey suggested that economic growth could continue to soften in the short term.

"And with economic headwinds ongoing, we don’t see growth accelerating significantly further down the track. Capacity pressures continue to trend down, which together with the growth outlook suggests inflation will drift away from the target midpoint over time without a leg up from further monetary stimulus. 

"In terms of our August OCR cut call, today’s release skews the balance of risks towards an earlier cut rather than later. However, several key data releases lie between now and then (such as Q1 CPI and Q1 labour Market Statistics), and a decent disappointment in any of them could result in a cut as soon as May. Not to mention the lengthy list of global risks that could spur the RBNZ into action a little sooner. Firms see OCR cuts on the cards too, with a net 12% now expecting lower interest rates over the next 12 months, compared with net 6% last quarter," Kendall and Workman said.

So, while an opinion survey is just that - opinion - the reality is that falling confidence levels are likely to feed into the decisions businesses make about investment and hiring.

Significantly, the latest NZIER survey shows a net 2% of respondents to the survey expect to reduce investment in plant and machinery. That's the weakest reading in this survey since 2012.

The NZIER survey is watched closely by economists and the market and therefore the latest results are likely to see economists trimming their forecasts for New Zealand's economic growth rate this year.

This is the full statement from the NZIER

The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows businesses started 2019 more downbeat about the economy. A net 27 percent of businesses expect a deterioration in general economic conditions over the coming months – close to levels seen back in the September 2018 quarter.

Of more concern was the decline in firms’ own domestic trading activity, with a net 1 percent of businesses reporting weaker demand in the first quarter of 2019. This is in contrast to the net 4 percent of businesses that had seen an increase in demand in the December 2018 quarter. Firms’ own trading activity is a better measure of economic growth, and the results suggest a further softening in annual GDP growth over the first quarter of 2019.

Weaker domestic demand across most sectors

Businesses across most sectors reported a weakening in domestic demand. In particular, manufacturers remained the most pessimistic, as domestic sales dropped sharply. In contrast, export demand strengthened despite the increasingly uncertain global growth outlook. Cost pressures remain intense in the sector, and with pricing still subdued, this is contributing to continued weak profitability.

The outlook for the building sector is also gloomy, with firms reporting weaker construction demand. The architects’ measure of work in their own office also points to a softening in the pipeline of residential and commercial construction over the coming years. Despite the increase in cost pressures, a net 14 percent of building sector firms cut prices in the March 2019 quarter. This drove a sharp decline in profitability in the building sector.

Profitability remains weak

Businesses are finding it increasingly difficult to raise prices despite rising cost pressures. This is contributing to continued weak profitability. However, more firms are looking to recoup margin by raising prices next quarter.

Firms more cautious about expansion

With firms expecting profitability to remain weak over the next quarter, there is more caution when it comes to expansion plans. This is particularly the case for business investment, with a net 2 percent expecting to reduce investment in plant and machinery – the weakest level since March 2012.

Firms are also more cautious about hiring, although a net 6 percent of businesses are still looking to increase headcount. Despite the softening in hiring, labour shortages remain acute. This should support a further lift in wage growth over the coming year.

NZIER quarterly survey of business opinion

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NZIER business confidence
Source: NZIER

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75 bps lower by this time next year.


The factors that caused the gloomy business expectation are very unlikely to be counter-balanced by a mere cut of OCR.

- Minimum wage increase
- labour law changes
- CGT uncertainties
- property price stagnation/decreases in AKL
- productivity stagnation
- labour skill stagnation / deterioration


Yep if your motor is sick, cutting the price of petrol, don’t make it go any better.

Will banks follow the RB lead and cut the floating mortgage rate? Their margins are very high internationally

I think this is what they'll do this time around. Leave the fix rates hovering around 4%, but when the OCR is dropped they'll move floating rates down with it.

Increasing capital requirements & the parent banks need for cash to prop up their operations.. maybe not.

Houseworks - go read up the RBNZ requirement for banks to increase their capital to operate in this market by 50% plus - current bank margins will be deemed very low when this is implemented once the RBNZ makes the announcement in Sept. The timing of this starting year end when CGT also causing anxiety is scary dumb


Looks like the rockstar is having a hangover

better give him a hair of the dog by cutting interest rates

The Australian economy is in financial rehab. I think they were more rockstar than NZ. Current data that RBNZ has must be looking pretty bad for this talk of an OCR cut.

Sydney prices are down 14% from the peak.

Interesting times we live in.

... as Taxcinda & the Incompetents are now running NZ , this rock star has morphed and downgraded into a minor red dwarf ... a fading star ... spinning spinning spinning ...

Going nowhere fast ...

Money on its way to being free.
Ah the capitalist utopia

"A logical process would be to take ever more currency out of circulation; the opposite of what we are doing now. There’s less to share. Less energy, less commodities etc.

Of course this blows up our current monetary system.

The distance between reality and ‘money’ has become way too large. We went from money to currency, now we have to go in reverse.

Money should follow reality, promises won’t work for long now anymore. Gold has been steady money for thousands of years, if we start using it as money again our current system implodes like a nuclear reactor on steroids. But our current system will implode anyway. Thinking we can keep up our current lifestyles with 7.5 billion people in a declining environment is delusional.

It is impossible. Look for ways to limit the starvation and avoid (major) wars.

Welcome to reality."

Why do you think capitalism is in anyway related to free money?
Capitalism - "an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state."

its sarcasm ... its clearly not
so what is it ... free money OR capitalism
we cant have both

Whoops, totally missed the sarcasm.
Sadly enough then bye bye capitalism, the people in power want free money and free money we will have. Even if it’s to our complete and utter detriment.

"Money on its way to being free.
Ah the capitalist utopia"
Free money is not a capitalist utopia.

"Gold has been steady money for thousands of years"
Again. Patently false.

ham n eggs,

The idea that gold has been steady money for thousands of years is just bizarre and totally at odds with reality. I can offer you some reading material: The Power of Gold,by Peter Bernstein or The Ascent of Money by Niall Ferguson.
If you get through these,come back and I 'll give you some more.

And what will they do if there is another GFC? It’s as though they are reacting to a crisis before it happens. I see this as a very clear signal that all is not well.....

Burying the roadkill corpse before you tell the kids Fido has gone to "doggy heaven",

Not looking good for investors with Term Deposits. Watching with baited breath. Really not a good sign for an already poor performing Labour government.

Lol. this disaster has been 10+ years in the making.

Central bank policy, not party policy.

Might be a good time for Grey Power to mobilise though.


People will be panalised for not borrowing money, seems to be where the world is going in the future?

Look on the bright side, SK: all them Panalised People can be used structurally as Panels in KB houses. Soylent Green solution for the housing space.....

Put a point on the confidence graph on the date Labour took office, the relationship between falling confidence and the new government becomes blatantly clear

This is rotten news for people with term deposits.

But, on the bright side, a drop in the OCR will provide for on-going stability/steadiness of the housing market.


Seems to be mostly boosting the stock market, the NZX50 is up about 14% since the start of the year.

Lowering rates will be an act of desperation to keep the property bubble pumped up (seeing what’s going on in Aust). Yet more cheap credit. We all know when it pops it’s going to really hurt the whole economy. Blaming the present govt for the bubble is very partisan, the music had to stop at some stage.

Ah, yes, OCR cuts will be announced to much euphoria from the media. When they fail to have much effect (there is a 12-18 month lag on the full effects) then we will join the discontented everywhere in thinking that our politicians are all prats and our bureaucrats are all idiots and the media are all stupid. Interesting times. I wonder what form our discontent will take?

Simplistically the lower price of finance is meant to encourage entrepreneurship and innovation. Think that particular drum has been beaten hollow by now. ie 0.25% will not make one iota of difference. 10 carrots in front of the donkey is no more effective than three. Hate to say it but, for us old timers, a quip from The Planemakers concerning flogging a dead horse, comes to mind.

A sensible, MMT-informed, government in these circumstances would be announcing a productivity enhancing infrastructure programme, a cut to GST or low to middle income earners and some social spending like say free after school childcare or subsidised healthy school meals (that other countries like France and Japan seem to manage to provide their citizens). Instead we will have an OCR cut as a stimulus to ever higher household debt. String pushing.

Japan and France have strong competitive advantages in industrial production, particularly the former. Also, Japan is a creditor nation. That could possibly explain why they can handle huge public sector debt.

If I could be bothered I’d go back to the comments sections from a few months back and link to all the DGMs proclaiming with confidence that interest rates are about to rise and burst the “bubble”. As time proves the DGMs wrong, I’ve noticed they stop commenting, only to be replaced by new DGMs. Honestly I feel like a character in Walking Dead fighting off an endless herd of zombies.

Lowering the OCR.. the rockstar economy is about having a smoko break inside the Hindenburg

Lol... Rockstar economy - came and went like a dropped fag in a fireworks factory (Quote from Radio With Pictures circa mid 80s. Was actually referring to Punk music, but still fits the bill.)

Water-cooler conversation with the principal of an executive recruiting company whose offices are just across the corridor. Boards are putting away their capex wallets, deferring appointments (not good for his business) and generally hunkering down.