Business confidence at lowest point in decade

Rising capital costs, and an inability to pass these costs onto the consumer, have pushed business confidence to the lowest point seen since 2009 according to Westpac’s Quarterly Survey of Business Opinion for the June quarter of 2019. 

General sentiment about the near-term outlook of New Zealand businesses fell from -28 in the March quarter to -31, while attitudes toward pricing fell from 27 to 14 points. Likewise, expectations of profitability in the next three months fell from -18 to -24 points. 

The details of the survey presented a picture of businesses struggling to cope with a number of significant changes – namely recent increases to minimum wages, as well as changes to employment law and increased regulatory and compliance regulations.

In addition, the ease with which customers can compare prices and seek alternatives makes it difficult to pass on any increase in costs to consumers, with price hikes running the risk of driving business to the competition. 

“As a result, firms are seeing a squeeze on their profitability, and have scaled back their expansion plans accordingly,” Westpac senior economist Michael Gordon said.

However, while the retail industry was “less confident” in June, it did report an improvement in profits on the back of higher prices. 

While NAB expects economic growth to improve in the second half of the year, these results still raise the potential that conditions will get worse before they get better.

“That presents a challenge for the Reserve Bank in particular, which assumed a strong pick-up in growth in the near term in its most recent forecasts,” Gordon said.

“This reinforces our view that the RBNZ will lower the [official cash rate] further at its next review in August.”


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