Business confidence improves overall but services sector gloomy

Business confidence improves overall but services sector gloomy

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Wellington, January 14, 2020

(Source: NZIER)

The latest New Zealand Institute of Economic Research (NZIER) Quarterly Survey of Business Opinion (QSBO) shows an improvement in business confidence in the final quarter of 2019, with a smaller proportion of businesses expecting a worsening in general economic conditions.

Meanwhile firms’ own trading activity, which provides a better indication of demand in the New Zealand economy, remained soft.

The proportion of businesses reporting weaker demand in December 2019 remained at 11% on a seasonally adjusted basis, suggesting annual GDP growth of around 1% towards the end of 2019.

Improvement in manufacturing

A net 20% of manufacturers expect worsening economic conditions over the coming year, an improvement from the net 52% in the previous quarter.

The global outlook had been on the mend towards the end of last year, as the US and China looked closer to agreeing on a trade deal. Manufacturing export demand rebounded, and costs were moderating in the sector.

There are signs manufacturing sector profitability is turning around.

The outlook for the building sector is also improving, with signs of a growing pipeline of construction work. Architects’ measures of activity in their own office points to a rebound in the pipeline of Government construction work over the coming year.

This rebound is likely to reflect the effects of the announcement from the Government of increased infrastructure spending.

Services Sector gloomy

Although sentiment also improved in the services sector, a net 26% of services sector firms still expect a deterioration in general economic conditions over the coming months – it is now the most pessimistic of all the sectors.

With increased capital requirements likely to increase costs for banks, this is weighing on confidence in the financial services sector. Fewer financial services sector firms are also expecting further interest rate cuts over the coming year.

Firms remain cautious about hiring and investment.

Persistently weak profitability means firms remain cautious when it comes to expansion plans.

This caution is particularly apparent when it comes to investment in buildings, with a net 10% of firms looking to reduce this type of business investment over the coming year.

Firms are feeling more positive when it comes to hiring in the next quarter.

Provinces downbeat

Hawke’s Bay was the only region where optimists outnumbered pessimists. Other provinces including Gisborne, Manawatu-Wanganui, the West Coast, Tasman and Blenheim were particularly downbeat, with over 40 percent of businesses in these regions expecting a worsening in economic conditions.

Businesses feeling less downbeat, but demand still soft.

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