Construction sector confidence slumps

Banks have tightened their lending criteria and reduced their lending growth to residential and commercial property developers. Photo: Lynn Grieveson

Construction sector confidence slumped in the June quarter despite solid expectations for output and new orders, adding to indications in the March quarter that building activity is coming off its highs under the weight of capacity constraints and tighter credit availability from banks.

The New Zealand Institute of Economics (NZIER) Quarterly Survey of Business Opinion found a net 18 percent of building industry respondents expected better economic conditions in the next quarter, which was down from a net 31 percent in the March quarter and a high of 36 percent in the September quarter of last year.

Banks have tightened their lending criteria and reduced their lending growth to residential and commercial property developers in the last six months as they hit their limits for cheap local term deposit funding and looked ahead to tougher capital requirements from regulators.

However, a net 33 percent of builders still expected more new orders in the next year, virtually unchanged from 34 percent in the previous quarter, while a net 36 percent improved their actual output in the June quarter, up from 21 percent in the March quarter. Capacity utilisation in the building sector also softened from a record high 94.6 percent in the March quarter to 93.8 percent in the June quarter.

Elsewhere in the survey, business confidence more generally was broadly steady. A net 18 percent expected an improvement in general business conditions in the next quarter, which was unchanged from the March quarter. A net 23 percent expected their own trading conditions to improve in the next quarter, down only slightly from 25 percent in the previous quarter.

The survey also showed few inflation pressures coming through in the economy, despite businesses reporting problems finding skilled and unskilled staff. A net 24 percent expected to increase their selling prices in the next quarter, down from a net 29 percent in the previous quarter. The closely watched capacity utilisation measure dropped to 92.1 percent from 93.6 percent in the previous quarter.

NZIER Senior Economist Christina Leung said the survey indicated average GDP growth of around three percent in the year ahead and few signs of inflation picking up.

"There are signs that capacity pressures are easing in the New Zealand economy," Leung said.

"There is a little urgency for the Reserve Bank to lift the OCR," she said, adding the NZIER did not see the Reserve Bank lifting the rate until the middle of next year.