Economy risks stalling as business confidence falls to 10-year low, ANZ says

Economy risks stalling as business confidence falls to 10-year low, ANZ says. Photo by Lynn Grieveson

New Zealand business confidence reached a 10-year low in July, with headline confidence and firm's views of their own prospects dropping.

A net 45 percent of 340 firms surveyed in the ANZ business outlook survey for July expect general business conditions to deteriorate in the coming 12 months, 5 points lower than June's result and the lowest that measure has been since May 2008.

The survey has become a political football since the election as confidence has continued to weaken. ANZ noted today that "firms’ perceptions of their own prospects are a better gauge of economic outcomes, but the news wasn’t upbeat here either", with that measure down 5 points to a net 4 percent of firms predicting increased activity in their own business, from a net 9 percent last month. That's the lowest since May 2009, "and well below the long-term average of +27", ANZ said.

"This economy feels increasingly late in the cycle," ANZ said. "Fiscal stimulus and the still strong terms of trade will support growth. However, sustained low business confidence increases the risk that firms will delay investment and hiring decisions, in what could become something of a self-fulfilling prophecy."

"It’s difficult to take a glass-half-full view of this month’s survey results. Firms are grappling with low expected profitability; yet with no meaningful lift in pricing intentions, it seems squeezed margins are expected to persist," ANZ said.

Today's survey showed profit expectations dropped 4 points to net 16.8 percent negative, with retail again the weakest sector, and a net 37 percent of businesses expect it to be tougher to get credit.

Hiring intentions rose 1 point to net 2 percent of firms planning to take on new staff, though hiring intentions were negative across retail, construction and agriculture but positive in services. Investment expectations fell 3 points, with just a net 1 percent of firms expecting to lift investment.

A net 29 percent of firms intend to raise prices, up from 27 percent in June, while inflation expectations dipped to 2.2 percent from 2.3 percent.

The survey, particularly negative in the retail sector, comes despite consumer confidence still being around historical averages, at 118 in the July ANZ Roy Morgan consumer confidence index released last Friday.

ANZ pointed to high household debt, strong competition and an ongoing shift to online, including offshore, spending as suppressing retail activity, and said higher anticipated costs may also be at play in the sector's negativity on expected profitability.

"Relatively unskilled labour is a key input for this sector, meaning exposure to the minimum wage is significant. Expected costs are not surveyed, but anecdote certainly suggests a degree of concern," ANZ said. "The New Zealand economy is delicately placed. Fiscal stimulus and the high terms of trade will provide impetus to growth, and the external environment remains favourable. But with businesses in a funk, it’s fair to say that the road ahead is looking less assured, and risks of a stall have increased."

ANZ also noted that commercial construction intentions are at negative 17 percent, down 6 points and the lowest level since 2010, while retail construction intentions dropped 2 points to positive 16 percent.