NZ firms get even gloomier as profit expectations dwindle, activity slows

Agriculture was the gloomiest sector at a net 39 percent predicting a deteriorating national outlook. Photo: Lynn Grieveson

New Zealand business confidence got even gloomier in May as firms, especially retailers, expect slower activity and more are now anticipating earnings to shrink in the coming year.

A net 27 percent of 354 firms surveyed in the ANZ business outlook survey expect general business conditions to deteriorate in the coming 12 months, compared to a net 23 percent pessimists in April. Companies typically get more downbeat about the broader economy under a Labour administration, making expectations for their own activity a better indicator for gross domestic product, and firms are the most pessimistic they've been about their own business since November with a net 14 percent predicting increased activity, down from 18 percent in April.

"The survey made for fairly uninspiring reading this month, with all aggregate activity indicators flat to falling," ANZ Bank New Zealand chief economist Sharon Zollner said in a note. "The economy still has good tailwinds in the form of fiscal stimulus and the record-high terms of trade, but may be tiring nonetheless."

New Zealand's headline economic indicators have supported the idea of robust growth in recent, supported by strong inbound net migration fuelling residential investment in new housing and bolstering consumer spending, and the Organisation for Economic Cooperative and Development still anticipates solid growth.

While firms have been optimistic enough to absorb that expanding workforce, it hasn't spilled over into wage growth as consumer prices remain flat and per capita economic growth has been dubbed anaemic by some commentators, with a lack of infrastructure spending failing to keep up with the larger population.

Today's survey shows companies are more concerned about earnings, with a net 8.5 percent expecting profits to fall in the coming year, compared to a net 0.9 percent in April, and just 3.2 percent intend to increase investment, down from 7.2 percent. Hiring intentions also declined, with a net 6.9 percent planning to take on new staff, down from 8.9 percent in April.

Agriculture was the gloomiest sector at a net 39 percent predicting a deteriorating national outlook, followed by manufacturing at 28 percent, whereas retail was the most downbeat about their own activity with a net 3.6 percent expecting increased activity, followed by agriculture at 3.8 percent.

A net 26 percent of firms intend to raise prices, up from 22 percent in April, with a net 33 percent of the services sector driving that increase. Still, inflation expectations remained anchored at 2.13 percent, up from 2.11 percent.