NZ firms grow gloomier about economic outlook; scale back investment, hiring plans

New Zealand firms grew even gloomier in August as falling commodity prices and a lack of inflation looks set to keep profits down, and have scaled back their intentions to take on new staff or invest in their business.

A net 29 percent of firms were pessimistic about the general economic outlook over the coming year, deteriorating from a net 15 percent in July, according to the ANZ Business Outlook. A net 12 percent of companies see their own activity expanding, down from 19 percent a month earlier, and a net 1.5 percent see shrinking profits, compared to a net 8.9 percent expecting growth in July.

“Confidence may not be the economic engine that drives growth (ultimately incomes do), but it’s critical for keeping the economic wheels turning,” ANZ Bank New Zealand chief economist Cameron Bagrie said in his report. “Lacking confidence, firms don’t invest, or take a punt on that new employee. Activity can grind to a halt. That’s a growing risk.”

New Zealand’s strong growth over the past couple of years is expected to slow down as slumping global dairy prices erode dairy export receipts, and as the tailwind from the Canterbury rebuild starts tapering off. Ratings agency Standard & Poor’s last week said it anticipates gross domestic product will expand 2.4 percent in 2016, slowing from a 3 percent pace in 2015.

Today’s survey was the fifth monthly decline in business confidence and its second in negative territory, with agriculture the most downcast among the sub-sectors.

A net 39 percent of respondents see a contraction in livestock investment, compared to a net 8.3 percent a month earlier, while a net 9.4 percent of firms see commercial construction intentions shrinking, compared to a net 6.6 percent in July.

Residential work is still seen expanding, with a net 12 percent of firms positive on the sector’s outlook, up from a net 6.2 percent a month earlier.

Of the 473 respondents, a net 0.4 percent expect investment to contract, compared to a net 11 percent seeing expansion a month earlier, while a net 2.8 percent plan to take on new staff, down from 9.3 percent in July. A net 11 percent of firms anticipate exports increasing over the coming year, down from 19 percent a month earlier.

ANZ’s Bagrie said a lower New Zealand dollar and falling interest rates should help stabilise the economy, and dairy prices have shown signs of recovering after their freefall through the first half of the year.

“We need to keep Chicken Little in the coop – the last thing New Zealand needs at present is to talk ourselves into a funk,” he said.

A net 41 percent of firms see the unemployment rate rising, compared to a net 16 percent in July, and 11 percent see capacity utilisation increasing, compared to 20 percent a month earlier.

A net 61 percent of respondents expect interest rates to fall. Just 1.8 percent see it becoming easier to get credit, down from 9.4 percent in July.

A net 16 percent of firms expect to raise their prices over the coming year, down from 22 percent, and their inflation expectations for the coming year slipped 2 basis points to 1.68 percent.

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