Treasury reports disappointing RWC impact, flat economy

Feedback from businesses to Treasury officials paints a flat picture of the economy.

The past month has seen Treasury officials talking to businesses in the country's main centres as part of preparation for the May budget.

"Flat" appears to be the word which featured most frequently, according to a supplement to the Treasury's monthly economic update released this afternoon.

"Activity was most commonly described as being 'flat'," the report says.

"Sometimes, this term was used to indicate there was little or no growth in business activity, which was bumbling along at a relatively low level.

"At other times, it was used to mean business was growing but the rate of growth was low and/or the same as last year."

There is no clear picture across the economy, the report says.

Different firms operating in the same sectors provided different responses – one example being retailers' response to the Rugby World Cup.

Some told officials it boosted trade. Others reported the event took trade away.

"There were also conflicting reports from the travel/tourism sector.

"Some operators enjoyed a boost to business through the RWC period, which has continued on afterwards," the report said.

"Others have experienced declining sales over the past nine to 12 months.

"On balance, the RWC was perhaps not as much of a boon for tourism as had been hoped, despite the higher-than-expected visitor numbers."

The feedback also says the construction sector is "doing it tough" but adds that prospects are good, especially with the Christchurch rebuilding effort expected over the next few years.

Residential property is an Auckland verses the rest story, with a pick-up in activity in the country's biggest city and flat activity elsewhere.

"Even within Auckland, activity is concentrated more towards the central city rather than more outlying areas."

Officials do not seem to have delved much into either agriculture or the manufacturing and exporting sectors, a fact acknowledged in the report.

"From the few comments that were received, on-farm production has been good, boosted by favourable weather conditions, and prices are relatively high, even though Fonterra’s dairy payout forecast has eased back a little lately.

"Log and dairy exports are continuing apace, but other manufacturers are struggling, with the high New Zealand dollar causing some concern."

Profits are also reported as being flat, with higher costs, especially for fuel, insurance and, to a lesser extent, wages, cutting into margins.

On the investment front, there is some pick-up, but mostly in information technology.

"While some firms reported they planned to undertake significant capital projects in the near future, these were the exception rather than the rule.

"Most were maintaining capital expenditure at depreciation levels or less. Any business investment that has been going on has been concentrated in the IT area."

Overall, the report says, the feedback from businesses is consistent with the forecasts in the Budget Policy Statement that "growth would be weak in the first half of 2012 following the temporary boost from the RWC and before the Christchurch rebuild gets fully under way in the second half of the year".

"However, they were less positive than recent business surveys, which have indicated some pick-up in activity."