Headline business confidence may be on the up in today's New Zealand Institute of Economic Research quarterly survey of business opinion, but the underlying indicators point to a more sober mood.
Headline business confidence may be on the up in today’s New Zealand Institute of Economic Research quarterly survey of business opinion, but the underlying indicators point to a more sober mood.
Firms’ expectations for their own activity soared, said NZIER chief executive Jean-Pierre de Raad, up from a net positive 6%in the March quarter to a net positive of 31% for the three months just finished.
The overall business confidence figure – always more volatile, and less accurate – is even more optimistic, moving from a net negative of 11% to a net positive of 31%.
But the “under the hood” figures are more mixed.
Crucially, profit expectations, although they improved, are still negative, moving from -28% to -23%.
Plant and machinery investment intentions are up, from a flat zero to 9%, and overall investment intentions are at a post-recession high, Mr de Raad said. The number of overdue debtors also fell dramatically.
Hiring intentions are also up – after firms reported that overall they shed more labour than they hired over the past three months.
Short-term inflationary pressures subdued
Firms are struggling to raise prices amidst a subdued demand environment, the NZIER survey showed. Margins remain tight and lack of demand is the key constraint on passing on costs. Cost pressures eased in June. However, firms are finding that labour is becoming more difficult to find. This and the Canterbury reconstruction point to medium term inflationary pressures. Current soft inflation and modest economic growth mean the RBNZ can hold the OCR at 2.5% until early 2012 before reassessing the need to raise interest rates, NZIER said.
Canterbury economy recovers from soft levels
Trading activity rebounded in earthquake-affected Canterbury (-3% from -19%), while there was a modest improvement in the rest of New Zealand (+3% from -3%). Capacity has become less of a constraint in Canterbury (4.3% from 9.8%), a positive sign for the recovery. The activity of manufacturers and builders soared, but service and retail sector firms are still struggling. At a national level, volumes for financial services firms are the lowest on record.
Building investment intentions stabilised at an elevated level in Canterbury (unchanged at +24%), while the rest of New Zealand remained flat at -9%. Plant investment intentions also soared in Canterbury (+24% from +8%) as they rebuild capacity after the earthquake. Profitability remains soft in Canterbury (-36% from -48%), while the rest of New Zealand stabilised (-22% from -26%). Hiring intentions recovered in Canterbury (+22% from -22%), particularly of builders needed for reconstruction work.
