Economists are expecting the Reserve Bank to be paying close attention to the concerns of businesses as ongoing pessimism may lead to lower economic growth.
This could, in turn, see the Central Bank delay increases to the Official Cash Rate (OCR) from its 1.75% record low.
On Tuesday, the New Zealand Institute of Economic Research’s (NZIER) business confidence numbers showed a net 19% of firms expect an economic deterioration in the coming months, up from 10% last quarter.
“We expect the Reserve Bank will take note of the fall in business confidence, and like us, will consider revising its 2018 Gross Domestic Product (GDP) growth outlook [for the second half of the year] lower,” says ASB senior economist Jane Turner.
In its OCR statement last week, the Reserve Bank made no mention of the falling sentiment.
But given Tuesday’s figures, as well as a string of poor results from ANZ’s business confidence index, it is more likely Governor Adrian Orr will address the issues in his August 9 Monetary Policy Statement (MPS).
“The Reserve Bank cannot ignore the recent cooling in business sentiment,” says Kiwibank chief economist Jarrod Kerr.
He says the pullback in business confidence, as well as business’ forecasts for their own trading activity, are red flags for economic growth.
“There is a real risk that New Zealand’s growth will fall below potential over coming quarters.”
Westpac senior economist Anne Boniface says the data shows the pace of activity in the New Zealand economy has dropped down a gear.
“It also supports the view underpinning our forecasts that this softer growth backdrop, combined with weaker confidence, will lead to a temporary lull in hiring and investment this year.”
Finance Minister Grant Robertson does not see business confidence having an impact on GDP growth throughout the rest of the year.
In the March quarter, GDP came in at 0.5% compared to the quarter prior; 0.2% lower than Reserve Bank forecasts.
“From the projections we’re seeing in the second and third quarters of this year, growth will be better,” Robertson says.
He points to fiscal stimulus in the form of the Government’s $5.5 billion families package, which took effect on Sunday, as one reason for his optimistic forecast.
Investment intentions – ignore at your own peril
The NZIER data shows business investment intentions – which Robertson says has a closer link to GDP growth than confidence levels – plunged over the June quarter.
In a note released before the data this morning, ANZ senior economist Phil Borkin said when it comes to what firms are saying about their own activity, it is a case of “ignore this information at your own peril.”
In response to ANZ’s numbers last week, ASB pushed out its expectations for the Reserve Bank to hike the OCR from August next year to November.
Although he says it's possible New Zealand’s economic growth levels are at risk, Kerr says there are still a few economic fundamentals that are underpinning the economy.
He says decent population growth, near-record terms of trade, mortgage rates remaining low and expansionary fiscal policy will all help support growth in the second half of 2018.
50 Comments
@larry76 . this Government thinks they are infallible - they are not
This Government thinks they are riding a wave of populist support - and that's dangerous.
This Government has created a massive 'culture of expectation" - and they simply cannot deliver
This Government has been 100% inconsistent W.R.T. Policy - such uncertainty is not good for business decision -making and risk-taking
This Government is already struggling to hold the centre , having to make concessions to keep its partners happy - this makes the Coalition weak and unsustainable
and worst of all, this Government has become arrogant.
@larry76 . this Government thinks they are infallible - they are not
This Government thinks they are riding a wave of populist support - and that's dangerous.
This Government has created a massive 'culture of expectation" - and they simply cannot deliver
This Government has been 100% inconsistent W.R.T. Policy - such uncertainty is not good for business decision -making and risk-taking
This Government is already struggling to hold the centre , having to make concessions to keep its partners happy - this makes the Coalition weak and unsustainable
and worst of all, this Government has become arrogant.
Hmmmm, not sure about that.
Talking down the economy and business confidence can be a self fulfilling prophecy, all with the ultimate goal of getting the OCR lowered which in turn supports the banks keeping their mortgage rates down which helps keep the Ponzi running along nicely....
2.
Quick. Panic. The RBNZ needs to boost house prices by reducing mortgage rates straight away. Or is it the bankers that are panicing cos their mortgage business has stopped growing, and What about Our Bonuses, Eh? Next minute they'll be having to earn their keep by lending to real businesses. You know, the sort that make and mend stuff.
If I wuz the Hon FM, I'd be more worried about the effect on Gubmint tax revenues.
It's always possible to spike GDP up a bip or three by opening the Immigration Valve a leetle wider. Harder to control tax revenues....because they depend on consumer spend (GST), employment, net migration, and business EBITDA. None of those can be influenced positively by much in the Hon FM's office.....at least in the Tradeable sector. So hence the urge to gin up the non-tradeable sector, instead...the Takers, not the Makers.
@waymad , it will take some time for Tax Revenue to fall behind a fall in GDP growth , the lag time is quite long , by then they will be out of power and someone else could inherit an economy either in recession or sliding into one ...... just like John Key did in 2008 .
So, our Finance Minister points to the $5.5b families package as a positive "stimulus" ahead. Really? As taxes increase to pay for all these giveaways, people and businesses have less money to invest in productive activity and will pull back...the opposite of "stimulus". I suppose he thinks that if he raises taxes to 50%+ and gives it away that this will somehow be an even bigger "stimulus". Why stop there. The mind boggles at the sheer level of ignorance and zero understanding of how an economy functions. A clear example of getting promoted to your level of incompetence.
The mind boggles at the sheer level of ignorance and zero understanding of how an economy functions.
Ain't that the truth. Every economist, for a start. Plus every economics reporter, seems to me. And a fair share of the party faithful, the vested-interests and the spin-doctors hereabouts.
https://agupubs.onlinelibrary.wiley.com/doi/full/10.1002/2013EF000171
https://ourfiniteworld.com/2018/05/11/how-the-economy-works-as-it-reach…
" sheer level of ignorance and zero understanding of how an economy functions" - are you saying leaving all money in the hands of the rich to invest in assets is best? I would say most sensible economists would agree with the finance minister that a $5.5 billion families package would be positive stimulus. Who is suggesting that businesses are paying for it? Isn't it being paid for by the cancellation of National's personal tax cuts?
Not rocket science that business confidence is down.
We are being run by a government that is ant business.
They would rather pay out money to. Itizens that are constantly a drain on the taxpayer and contribute nothing to our economy.
Hammer landlords who provide a service for the country and the ones that subsidise their tenants, lets hammer them even more.
The feelgood factor that Labour want to provide will always be detrimental and Winston knew this when he shat on the country!
Jason, this can be called reporting, in that you're reporting what people said.
It isn't journalism, though. Let's be very clear about that. Journalism requires investigation of the dispassionate kind. Assumptions have to be left behind.
One such false assumption is that growth can go forever, or even for very long after the inflection-point. Another false is that emotions - such as confidence - can alter physical realities. The Titanic is the yardstick - plenty of confident passengers, some really good at business. Didn't help one iota in the face of their physics problem.
Same goes here, now. We are running into a physics-forced slow-down and reversal. Can't be any other way. And investments are only bets that the future will be a certain way; if they rely on articles like this, do you think they're making their decisions in an informed manner? That's a self-fulfilling system, isn't it? Based on what, exactly?
https://steadystate.org/three-more-growth-fallacies/
https://theconversation.com/how-capitalism-without-growth-could-build-a…
When you get the real picture, much makes sense. Trump making coal-subsidies a matter of National Security, 9/11, lots of things. But the biggie is to stop reporting that economic growth is possible on a finite planet. If that is a truth, then anything to the contrary, is? You work it out....
Nor can any country which gets resource-raped and/or debt-hamstrung (IMF/World Bank loans etc). Or embargoed. It's a self-fulfilling result, but the story gets twisted because those who benefit - essentially the First World - choose to tell themselves a more comforting story.
The problem is that the problem is now global - there is no planet B to pillage and no more doubling-times to be had, Show me the economics lecturer - anywhere in NZ - who teaches that little truism? So we're left blaming those in corrupted power 'somewhere else'.
An alternative view from, of all places, Indonesia.. With 261 million souls, plus India's 1. 324 billion, plus China's 1.379 billion, it'll take more than a Kry from the Kilmog to move their minds to anything else but 'wot we can see the Others have already got'...
A common comment.
But technology doesn't create energy, merely uses it more efficiently. A fuel-injected computer-controlled vehicle rolls to a halt with an empty tank, alle same as a Model T.
Our problem is dwindling energy availability and decaying infrastructure - triage will come......
Last I checked the scientist types weren't worried about the sun dying or the moon wandering off anytime in the next 100,000 years, so no lack of solar, wind or tidal energy in the world. Geothermal, and hydroelectric also can be relied on te keep going for a while.
And plenty of known existing oil, gas and coal to get us through the next 50 or so, so long as we stop breeding like rabbits.
We are already transitioning (and have been for the last 70years, but now at an accelerated pace) to more efficient use of energy, and cleaner energy. We are a couple of decades at most (maybe a couple of years) from a serious drop in the cost of energy storage (whether it's lithium Ion batteries or something better), at which point rooftop PV + storage will be able to supply the majority of energy for home in temperate regions.
I think we have a problem.. The property spruikers have already claimed ownership of use of the DGM name, when really it should be reserved for you, steven and ham and eggs and co. Humanity isn't in it's terminal decline just yet. Sorry.
The population growth rate has been in a nicely pragmatic decline for over 50 years. Even better is that it plots a perfect Seneca Curve. That is an energy event, the inflection point that is. The trend and outcome are predictable just by looking at the math. The decline is clearly visible, and started around 1961. But you can hide your myopia behind a bit of name calling if it makes you feel better.
We can expect the GREENS to make more outlandish demands of the Government in due course , to appease their support base.
They are already being more than a little silly .
For the past generation we have done everything possible to stop people smoking tobacco , so I was quite surprised to see Chloe Swarbrick sponsor a Bill to legalise the smoking of Cannabis.
This so called ban on oil and gas exploration announced without even so much as a call to the oil companies, was another example of policy chaos and Green overreach
I don't understand why business instant write off limits are so absurdly low in NZ. In Aus it is currently $20k, and this provides a strong motivation for business to invest in technology, plant and equipment. At the very least perhaps providing NZ business with encouragement to invest might help things.
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