Business confidence falls from 20-year high in 2nd Quarter as growth moderates

Shamubeel Eaqub, New Zealand Institute of Economic Research principal economist

New Zealand business confidence declined from a 20-year high in the second quarter as economic growth moderates.

A net 33 percent of businesses were optimistic in the June quarter, seasonally adjusted, from a net 51 percent in the first quarter, according to the New Zealand Institute of Economic Research's Quarterly Survey of Business Opinion. The New Zealand dollar dipped to 87.38 US cents from 87.49 cents immediately before the release.

The survey showed a net 31 percent of firms expect improved economic conditions in the quarter ahead, down from a net 35 percent in the previous quarter, while a net 15 percent experienced a pick up in activity in the second quarter, down from 24 percent in the first quarter. The survey is consistent with growth moderating from strong levels, with annual gross domestic product moderating to 2.8 percent in the second quarter from 3.8 percent in the first quarter, the NZIER said.

"Things are still pretty good but the momentum is coming off," said Shamubeel Eaqub, principal economist at the NZIER. "The economy is still growing but the pace of growth may be starting to come off a wee bit."

Costs pressures are constrained and are likely to remain so for the foreseeable future, Eaqub said. However capacity pressures are starting to come through and prices are beginning to rise with consumer price inflation heading towards 2.5 percent by the end of this year, he said.

Firms reporting a rise in average costs edged up to a net 20 percent from a net 19 percent in the first quarter while a net 23 percent experienced price rises, up from a net 16 percent in the first quarter.

The survey comes as the Reserve Bank is expected to raise the benchmark interest rate this month, following three rises this year. Eaqub said he doesn't think the bank should raise rates any further.

"We should hold here to see what is happening with the economy," he said.

A net 93 percent of financial services firms expect interest rates to rise, up from a net 87 percent in the previous survey.

Those firms seeing profit growth eased in the latest quarter, to a negative 4 percent from positive 3 percent in the previous quarter, as sales volumes slowed.

The survey showed capacity pressures building, with capacity utilisation increasing to a net 90.6 percent from 89.4 percent in the previous quarter. The NZIER said the pressures were most acute for builders and those facing the domestic economy, rather than exporters.

(BusinessDesk)

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