By Bernard Hickey
The New Zealand Institute of Economic Research's (NZIER) Quarterly Survey of Business Opinion (QSBO) found confidence fell to its lowest level in three years in the June quarter.
Confidence in the dairy-connected regions of Waikato, Southland and Canterbury fell the most, but retailer confidence also dived after sales failed to live up to expectations in the March quarter, NZIER reported.
NZIER said the survey suggested annual growth in the year to June of 2.6% and it now expected the Reserve Bank to cut the Official Cash Rate by 25 basis points in each of the July 23 and September 10 decisions, with the possibility of a further cut on October 29.
Inflation expectations in the survey dropped to their lowest levels since early 2009.
The Reserve Bank watches the survey closely and signalled in June after its first rate cut that further cuts may be needed if demand weakened and inflation expectations remained low.
The New Zealand dollar dropped slightly to around 66.7 USc after the release of the survey in mid-morning trade.
NZIER's seasonally adjusted measure of firms' expectations of an improved general business situation in the next quarter fell to a net 7% in June from a net 20% in the March quarter. The survey's measure of firms' expectations of their own business activity in the next quarter fell to a seasonally adjusted 13% in June from 26% in the March quarter.
The net percentage of firms employing extra staff in the June quarter fell to 11% from 15% in the previous quarter.
The net percentage of firms able to increase their prices fell to a net 1% from a net 6%. This was the lowest level since early 2009, although the level of capacity utilisation, a measure closely watched by the Reserve Bank, rose to a record-high 93.4%. NZIER said the higher capacity utilisation reflected higher building activity.
NZIER Senior Economist Christina Leung said retailers were particularly downbeat.
"After a disappointing Christmas season, retailers continue to pare back sales expectations," Leung said, adding that difficulty in passing on costs was affecting profitability.
Even confidence in Auckland fell to a three year low, albeit at much higher levels than the rest of the country. A net 18% of businesses in Auckland were confident about their own business outlooks, down from a net 27% in the March quarter.
Leung said there were no indications yet of a fall into a recession. "We're seeing a moderation of growth," she said.
Economist reaction
ASB Senior Economist Jane Turner said she expected the weak business confidence and inflation to lead to three more OCR cuts by October 29.
"Indicators of inflation pressures remain very subdued, further reinforcing the case for further rate cuts from the RBNZ," Turner said. "While cost pressures are lifting slightly, firms are largely absorbing this increase with few reporting an increase in selling prices over Q2," she said.
Westpac Senior Economist Satish Ranchod said the survey added to a range of indicators pointing to a loss of momentum in the economy through mid-2015.
"With lingering softness in inflation and signs that activity is moderating, we expect that the RBNZ will cut rates again at its upcoming July policy meeting," he said.
ANZ Chief Economist Cameron Bagrie said the QSBO's results were similar in tone to ANZ's own Business Outlook survey, with warnings of weak profitability and high capacity utilisation a feature.
"This will have the RBNZ scratching its head, as are we. There is a sense that there could be a real margin squeeze story across the economy in the coming year," Bagrie said.
Political reaction
Labour Leader Andrew Little said the signs of a staggering economy could not be ignored.
“John Key and National have been complacent and squandered the opportunities they had to diversify the economy through a period of good growth. Now is not the time for back sliding and spin, the Government has to take responsibility and support businesses and workers through these headwinds," Little said.
“It is worrying that the Government has become so distracted with political obsessions like the state house sell-off and a frivolous flag referendum that they have let the economy slide,” he said.
(Updated with more detail, reaction)
NZIER quarterly survey of business opinion
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48 Comments
Having an interest in a large provincial retail outlet this is hardly a surprise. For us the recession started on the 1st January 2009 and is progressively getting worse. 11 years ago we had close to 30 staff. Now only 20 or so. People left and were never replaced. I am picking a lot of retailers who employ a lot of people are going to close down before there is any recovery in the economy. When I heard the word" rockstar economy" I laughed as we have never seen it. It was generally used by economists and commentators who had no skin on the table. They would collect their salary each month. None of them live in the real world.
How much more will you borrow to keep you business alive if interest rates fall, Gordon, if you know that your ex-customers WILL borrow more, but plough it into property speculation and not spend it in your store? My suggestion is that regardless of the price of money, you won't be sensibly taking on one more bean of commercial debt ( even if you do personally add to the debt of the bulging property owning class!).You may take it on sentimentally ( those long term employees and their families, and all), but until New Zealand redirects the usage of the debt that it continues to take on, your shop, and thousands like it ( and their employees) are going out of business. It's just a matter of when and how much you all owe.
And here's my take on it. Your customers aren't coming back! To re-calibrate the NZ economy now will mean financial hardship for many property owners, and they then aren't going to have the fire-power to spend in anyones shop. We have gone down a road of hardship too far, and turning back will see us die as surely as continuing down it.
I sympathise with gordon, a business with an annual lease of $200k, employing 30 people (who are part of the community) is a multi-million dollar business which isnt something you can start-up and wind-down on a whim. I have consulted to a number of businesses experiencing such pressures and the solutions are rarely pleasant. In todays environment of disruptive technologies I don't see it getting better
You sound like someone who has never taken a risk and been self employed. A large part of New Zealand is employed by businesses like mine and without them we would be another Greece. I would have thought there were enough people sucking benefits off taxpayers as it is.
Actually, we aren't far from the same road Greece is taking.
In Greece you can retire at 55 with a govt pension, NZ Govt refuses to lift the age up to 67 and no means testing.
In Greece most people are on average wage of less than 25K euro and yet they're living like they are on executive salaries! just look around Auckland for similarity.
Both govts are kept on borrowing!
What your peddling is an insidious anti Greek myth. What's your evidence to back up your claims?
"Previous governments have tackled the problem. Pensions have been cut by an average of 27 percent between 2010-2014 and by 50 percent for the highest earners. The average retirement age was raised by two years in 2013 and Greece has said it is willing to curb early retirement benefits further.
On average Greek men now retire at 63 and women at 59, according to government data. In Germany, the average retirement age for those receiving an old age pension in 2014 was 64 years"
http://www.reuters.com/article/2015/06/16/eurozone-greece-pensions-idUS…
It depends on what you believe CM...
http://www.globalresearch.ca/greece-the-one-biggest-lie-you-are-being-t…
"What you do, is get the country to do a massive infrastructure development, and lend them the money to do it" ( from the video on your link) !!! And right on cue, today we get the Joyce announcement re the exact same thing.....
https://www.youtube.com/watch?t=197&v=RVsB07CcSNw
Actually we're very rapidly rapidly following them, about 20 years behind government wise. The government trying to control and accelerate the economy with government spending is doing that. Greece has some of the best infrastructure in the world for it's population size, and some of the most crushing poverty in it's rural sectors (because rural sectors don't need many government employees - like what is happening in NZ now. And like now the Greek government saw no profit in improving rural or provincial towns, as "the real money" was in finance, real estate, computers, city commerce.... just like Auckland).
Only our primary exporters have acted as a strong enough resource to give NZ more income than Greeece. Greece has more reason for tourism, plenty of wine, used to have asparagus and other exports but those mostly got devalued and "globalised" to other countries.
You obviously have never been in business on your own account. Do you really think the people in my retail shop can make dairy farmers and oil and gas workers who have lost their jobs come into our shop and buy stuff. We are not in North Korea. I think it is still the case that you cannot put a gun to someone's head in NZ and get away with it.
Gordon - Can you find add-on business? Online, other products, use of part of the space for storage for other products, courses/training anything, small cafe in the corner, some novelty stuff??
What's the existing layout like, is it appealing??
Are the Managers up to the job?? Sometimes you just got to keep turning over the stones.
frazz anyone who knows me knows I am retired as I had a very busy practice which consumed my life. However when I got out of that at 58 years of age I was never going to just read books and play golf. I already had this interest in this retail business as a silent partner and it has been a good thing as it has kept my brain stimulated the last two years. I have no set role but I do keep an eye on the cash flow. I love retail but it certainly have never been so challenging. You certainly have to keep an eye on stock levels and watch the debtors. In the last two years I have been to Europe , Australia twice , Japan and the USA. Now that the dollar is getting a lot lower that certainly is not looking so great for the average New Zealander. We have a great country but the regions need more people to survive and more people with disposable income.
Good I am glad you have seen those places, how is your business doing internet sales wise? Are you competitive with other sites?
I am moving to Wellington as Auckland house prices and cost of living don't encourage my generation to have and bring up a young family. We have cashed up and will stay that way, will return once the bubbles explodes...I see the pins approaching from all sides now.
Our business does not compete with the internet largely thanks heavens. We purposely do not stock items that are either held by other retail stores or internet stores as there is just no point competing where the GP is too low. I have reduced my shareholder loans to the company by 33% in the last six months through reducing stock levels and keeping a closer eye on debtors. May was not too bad a month but June was back to normal. I do not think the average New Zealander appreciates just how many people small businesses employ. The government and RB need to make sure the economy does not go too flat otherwise there will be an increasing strain on benefits.
Seems like nationals got it covered. http://www.stuff.co.nz/national/politics/70031958/government-launches-p…
I don't think policies to let in rich migrants will help the economy. We should be letting in young people who are highly qualified and keen to work. Money does not make an economy, this is why China is heading into recession, liquidity on it's own doesn't work, values have to be based on real supply and demand. If we get a world recession all of these so called rich immigrants will lose millions. Then we what use will they be to us.
My one is 20 years old. I think it should last another 6~8 years (next cambelt change) by which point I am not so sure if I'll be able to afford the petrol, if I can get it. Going to be one huge amount of worthless steel, plastic sitting there most of it paid for with debt.
That is your decision but if I could do it I would have it in "ultra-ultra-conservative" by now after I lost a huge amount in 2008/9 but this pension is locked in. ie at 65 it was projected to pay 50k now its projected to pay 30k and we have not and we have not seen the main act yet.
:(
Indeed, I look back and recall the options. Instead of paying down the home via a table mortgage I could have got an "insurance policy" that would payout the capital as a lump sum. thank god I didn't do that as I'd be 40% down at 65. Quite a few ppl I know did, greed in their eyes.
The promise is worthless now IMHO, no one should believe we can have expotential growth for ever on a finite planet. What I do now is over-pay the mortgage as that is guaranteed by me and a real debt at 6% tax free.
"Chinese margin traders will be able to purchase stocks by putting up their homes as collateral."
There's the answer to boost confidence! Allow speculators to use their overvalued property as the means of doubling down on a 'sure thing'.....
http://www.sharecafe.com.au/dreck.asp?a=AV&ai=35450
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