Business mood turns negative

The latest quarterly survey of business opinion by the New Zealand Institute of Economic Research shows that of the 2500 firms surveyed, the net outlook has shifted from +10% in September to -3% in the December quarter.

The survey is probably errs on the optimistic side, says the institute, because firms in only one region - Canterbury - show a net positive outlook.

This is driven by an anticipated pick up in activity as the rebuild following last year's earthquakes takes place over the coming year.

However, the Canterbury figures are likely to be skewed to the upside because only firms still operating in the area have responded to the survey, said the institute's principal economist Shamubeel Eaqub.

On a sector basis, the picture is more mixed, he said.

The services sector, which is dominated by tourism, is showing a gradual improvement in outlook, but manufacturing output is flat, and building sector output and new orders have fallen, although they remain positive due to the Canterbury factor.

"The biggest concern for me was the increase in inventories pretty much in every sector, because it feels like it is unexpected and unanticipated. A bit earlier it might have been the Rugby World Cup but if they have taken that into the fourth quarter that points to an overhang, weakness into the fourth quarter and potentially into this year."

Hiring intentions are more positive than other parts of the survey, which appears to be anomalous, but Mr Eaqub said this appeared to be a mix of the Canterbury influence plus the fact that labour market indicators tend to lag other measures.

Those other indicators are less positive. In particular, plans for investment in plant and machinery by firms outside Canterbury have gone flat again.

This follows something of an investment surge by firms over the past year.

Firms also reported their profitability had been lower than anticipated in the last quarter.  While most firms in September expected their profitability to contract, more actually experienced this than anticipated at the time.

The picture was of a slowing economy rather than a recession, Mr Eaqub said. "We are still looking for that rebound in post recession activity but that is not yet happening."