No sign of stimulus as economic conditions slump further
The Business New Zealand Economic Conditions Index has dropped to its second lowest level since the index began in 2000, defying efforts at stimulus.
The index dropped to -11, down nine points on the September quarter and down 16 points on a year ago.
Three of the four sub-indexes are heading downward, the exception being monetary policy, which has benefited from a drop in interest rates and the withering of inflationary pressures.
This sub-index held steady from the previous quarter at two, five points up on a year ago, thanks largely to the “inflation genie” now being “firmly in the bottle”, allowing Reserve Bank Governor Alan Bollard to take the axe to the official cash rate.
But the other categories make grim reading.
Economic growth and performance indicators are down two points to minus four, and down 11 on a year ago.
Of particular concern is the current account deficit, expected to worsen as falling prices hurt our exporters, and high overseas debt, which makes New Zealand vulnerable to a rating downgrade from Standard & Poor's.
Labour market indicators are down four to minus four, a 10-point drop from a year ago, with wage pressures easing as unemployment rises.
This is having a flow-on effect on the business/consumer confidence sub-index, which is down three points from the last quarter to minus five.
The decline is expected to continue despite tax cuts, lower interest rates and a more competitive New Zealand dollar.
This is largely blamed on the “deteriorating” labour market, which is expected to hit sectors such as retail, tourism and hospitality.
Household debt levels, which have seen a small decline after years of whopping increases, point to further drops in consumer activity, which could mean an even bigger drop in business confidence next time the index is released.