The New Zealand Institute of Economic Research's (NZIER) closely-watched survey of business opinion found confidence about firms' 'own activity' fell to a five year low in the June quarter, suggesting a moderation of economic growth towards two percent from three percent in mid to late 2018.
The NZIER survey confirms a slide seen in recent months in the ANZ monthly survey for both confidence about the wider economy and 'own activity'. The wider business confidence figure is more closely correlated to which type of Government is in power than GDP, but the 'own activity' measure is a more reliable leading indicator of GDP growth. This result confirms the concerns about weak business confidence are more than just political bias.
The survey of seasonally adjusted experienced domestic trading activity found a net seven percent saw improvement, down from 15 percent the previous quarter to the lowest level since 2013. Expectations for own activity in the next three months also deteriorated, falling to a net 13 percent from a net 16 percent, which was the lowest since 2016.
Confidence about the general business situation fell to a net 19 percent negative from a net 10 percent negative in the March quarter. This was the lowest level since 2011.
NZIER reported profitability expectations fell sharply, particularly in retail and construction because of rising cost pressures from wages and shortages of workers and materials. The Government's plan to increase the minimum wage by more than 20 percent over the next three years and cost pressures in construction were cited. Retail sector profitability expectations fell to their lowest level since March 2009.
A net four percent of businesses expected to reduce investment in buildings, the lowest level since December 2011 despite residential and commercial construction being near record highs and the Government promising to ramp up KiwiBuild and infrastructure investment.
Architects work in commercial and Government construction fell to a seven year low.
The result is likely to increase expectations that the next move in interest rates is likely to be down. Mortgage rates have been trimmed in recent days as data continues to show a weakening economy and very low inflation.