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NZIER: QSBO shows further weakening in business confidence

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Fuseworks Media
Fuseworks Media

The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows a further decline in business confidence. A net 19 percent of businesses expect a deterioration in economic conditions - more pessimistic than the 10 percent in the previous quarter.

Continuing the recent trend, firms’ views on their own trading activity - a good indicator of economic growth - remained more positive. Domestic trading activity in the June quarter still softened, however, with the proportion of businesses reporting higher demand decreasing from 15 to 7 percent.

Firms’ expectations of future demand also eased, with fewer businesses expecting improved demand over the next quarter. These developments point to softer economic growth in the second half of 2018.

The drop in confidence was pervasive across the regions, with Taranaki, Otago and Blenheim particularly downbeat.

Higher costs impacting negatively on profitability

Weak profitability was a feature across most sectors. Building sector firms report intense cost pressures in the sector, which is continuing to have a negative impact on profitability. Furthermore, building sector firms are no longer optimistic about a rebound in profitability, with a 14 percent expecting profitability to worsen in the next quarter.

The retail sector was particularly downbeat, with business confidence falling to its lowest level since March 2009. Profitability in the sector fell sharply, as retailers struggle to pass on substantial cost increases fully through raising prices.

The lift in the minimum wage is likely to have played a key part in the sharp increase in costs, given the relatively greater proportion of the retail workforce that is low-waged.

Businesses more cautious

Weak business confidence and deteriorating profitability is making businesses more cautious about planning for the future. Although hiring is holding up across most sectors, investment intentions have declined. This is particularly the case for investment in new buildings, with a net 4 percent intending to reduce this type of investment.

This is flowing through to a softening in the pipeline of construction work, with architects expecting a decline in commercial and government construction work over the coming year.

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