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Drop in business confidence gives ammo to the doves

This afternoon's headline business confidence figure is a bit of a shocker.The latest monthly National Bank business confidence survey shows a 12-point fall in the headline rate.Business expectations of their own activity also fell seven points – bu

Rob Hosking
Wed, 28 Jul 2010

This afternoon’s headline business confidence figure is a bit of a shocker.

The latest monthly National Bank business confidence survey shows a 12-point fall in the headline rate.

Business expectations of their own activity also fell seven points – but this crucial indicator is still in positive territory by 32 points and is above the historical average.

All sectors, except the unusually upbeat manufacturing sector, reported declines in the outlook for their own sector.

The most worrying signal in the latest survey is not those figures or even the hiring intentions figure, which, although it fell, still shows a net positive 8% of respondents expecting to take on new staff. This though is not across the board – agriculture and retail both expect to be shedding staff numbers over the coming months.

The main concern is that investment intentions have taken a hammering. These are still just in the positive territory, with a net 5% indicating they expect to increase investment in plant and machinery or other capital over the coming few months.

But that is below the historical average, and at this stage in the business cycle, coming out of a recession, investment intentions should be running high.

That points to a particularly subdued recovery.

Tomorrow Reserve Bank governor Alan Bollard is to review the official cash rate (OCR) and is expected, by all the market economists, to raise it from 2.75% to 3%.

The cooling of recent optimism, and the pulling back of investment intentions, would at other times have argued for Dr Bollard to wait another six weeks until the full monetary policy statement on 16 September.

The fact the markets have already priced in a rise tomorrow would make it difficult to wait until mid-September – although if Dr Bollard wanted to shave a cent or two off the New Zealand dollar, a no-change decision and “dovish” comments about the economy would be one way of doing it.


 

Rob Hosking
Wed, 28 Jul 2010
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Drop in business confidence gives ammo to the doves
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