Business Outlook

March 2009

Uninspired

Business confidence remains deeply stuck in the quagmire. A net 39 percent expect a deterioration in business conditions over the year ahead compared with a net 41 percent in February. The “glass half full” proponents can view this in itself as a positive. You have to stop falling before you can rise, or crawl before you can walk. Business confidence has done precisely that, improving 2 percentage points from February.

Own activity expectations did not show the same “first step”, falling a percentage point. A net 21 percent are expecting tougher times for their own business over the year ahead, a tad off December’s record low reading of minus 22. But intramonth movements in both headline confidence and own activity expectations of that magnitude can easily be accounted for by typical noise, and the real message is that while conditions remain tough, at least they’re not getting any worse. Hence we see marginal improvement in terms of the second derivative.

Other gauges show a similar picture. Profit expectations are unchanged on last month, with a net 41 percent expecting lower profits. Employment intentions remain weak, but recovered a marginal percentage point. A net 28 percent still expect fewer staff over the year ahead and views towards the unemployment rate are universally up. Investment intentions were the standout in this survey, falling another 3 percentage points. A net 19 percent expect to be undertaking less investment over the year ahead — a new historical low. Export intentions fell further, with a mere net 2 percent expecting positive growth, and that is prior to the recent run-up in the currency.

Pricing intentions nudged lower. A net 9 percent expect to raise prices over the year ahead, close to a six year low. Inflation expectations continue to ease. Both are telling. Inflation is yesterday’s story, for now anyway.

Our composite growth indicator from the survey remains downbeat, nudging lower again. At current levels, it is consistent with -3 percent growth.¹ In a word - yuk.

When we dissect the trends in the survey, some underlying themes are apparent. Expectations towards firms’ own businesses are universally weaker in the North Island than the South, and the gap remains relatively constant at present. Retailing remains the stand-out under-performer across most aspects excluding investment intentions. The divide across rural and urban aligned regions has closed. It was the latter that initially felt the heat in 2008, but are now the first to show signs of stabilisation. In contrast (and using the same approach regionally as we use for our composite growth indicator) we can see a deteriorating trend across the regions.

The month has brought much news, most of which confirmed a weak economy and tough global backdrop. We’ve had bungy-cord dynamics when it comes to the currency, a further cut in the Official Cash Rate, but with a clear message of more sedate moves from here. Our respondents agree, with a net 55 percent expecting lower rates from here, down from a net 69 percent the month prior. The global scene remains precariously placed. Job Summit aside, there is no shortage of job loss anecdotes. More encouraging news is that dairy prices have found a base, the grass is growing, and of course we’re seeing more New Zealanders stay as opposed to gunning for the big OE.

Economists’ opinions on the implications and outlook for New Zealand differ (naturally). Surprises and extraordinary news stories break daily, and financial markets (particularly the currency) can have all the demeanour of a headless chicken. Across the alphabet of economic recoveries (yes, it will come), procrastinations of a V, U, W and L feature. The Reserve Bank of New Zealand is banking on the former, akin to a martini glass shaped outcome. We’ll happily drink to that. The prelude to that will be the signals from businesses themselves. And time is short between now and the second half of the year when the Reserve Bank expects the strong sustained rebound to occur.

The New Zealand business community and wider public can’t really be blamed for having difficulty knowing what to make of it all, or what to expect next. Uncertainty prevails. It may for some time. In such a situation, it’s not just about having plan A, but also B, C and D.

¹ Our composite growth indicator uses the forward looking activity indicators from the survey (own activity, investment intentions, employment intentions and profit expectations), combining them into a single index.

Survey Results

The table can be viewed as charts on our Business Outlook charts page.

If you would like to become a respondent to our survey, send an email to economics@nbnz.co.nz with your business location and industry sector. For details on the nature and performance of the Business Outlook please refer to this file:
www.nationalbank.co.nz/economics/outlook/pdf/BOBackgroundPaper.pdf.
This background paper also contains enrolment forms for new survey respondents.

This material is provided as a complimentary service of The National Bank of New Zealand, part of ANZ National Bank Limited ("Bank"). It is prepared based on information and sources the Bank believes to be reliable. Its content is for information only, is subject to change and is not a substitute for commercial judgement or professional advice, which should be sought prior to acting in reliance on it. To the extent permitted by law the Bank disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to the material. material.