Businesses seem set to face some tough times this year as the dollar refuses to fall in value and interest rates rise at a time when wage pressure and Kiwi-Saver are starting to hurt balance sheets.
The dollar continued to move up towards a forecast US85c yesterday.
Across the Tasman, the Australian dollar rose to a fresh 24-year high against the US currency after strong investment data underlined robust demand in the economy and kept alive chances of more interest rate hikes.
The ANZ-National Bank Business Outlook reported a net 44% of New Zealand businesses expected business conditions to deteriorate in the coming year.
The level of pessimism was higher than the net 25% reported in December and represented a 10-month low, ANZ-National Bank chief economist Cameron Bagrie said.
‘‘Wariness towards the general economic situation has pervaded businesses' assessment towards their own business.''
Own activity expectations had fallen materially, with a net 2% of businesses expecting their firm to perform better in the year ahead, the lowest reading in two years, he said.
While general business confidence could wax and wane with intangibles, firms' own activity expectations tended to be stable and more reflective of business fundamentals.
Other indicators had similarly fallen. Employment intentions had turned negative.
Investment intentions showed a degree of resilience, although down from levels reported at the end of 2007. Export intentions had suffered in the face of a rising currency.
‘‘Continued reads from firms' own activity expectations at these levels would be indicative of an outright stalling in economic momentum. Thud; it's the aura of a hard landing,'' Mr Bagrie said.
None of the figures in the outlook were a surprise to Otago-Southland Employers Association chief executive Duncan Simpson.
‘‘There is a whole lot of stuff happening all at once. Interest rates and the exchange rate are part of it but energy and electricity prices are all going up.
‘‘I have had a nice letter from Contact Energy which indicates to me that electricity is going up 10%.''
Some businesses might be able to get a better rate than that if they used spot prices, but most businesses would have to accept the higher cost, he said in an interview.
The emission cost structure would lock in after July and pressure on wages was likely to see rates move higher this year as inflation was taken into account in negotiations.
Although the official inflation level was 3.2%, there was an argument that the real rate was more likely to be 5%, once the latest quarter was annualised, Mr Simpson said.
Employers were finding it cost much more to replace staff than they had earlier estimated and a 5% increase in wage or salary rates did not cut it in negotiations.
‘‘There is plenty to worry about right now. There is the prospect of more money flowing into the economy through the dairy sector.
Some of that will come here in Otago but most will be in Southland. That is driving some secondary activity for people who supply that industry.''
Tax cuts would not help businesses in the next six to 12 months if they were hoping for an increase in consumer spending to help lift their businesses, he said.
When mortgages went up, that was the first thing people would have to pay from any tax cuts. Any spare cash would go on paying higher food and petrol costs.
Mr Simpson predicted the year ahead would be ‘‘distracting, messy and ugly'' for businesses with any decisions made by the Government to be poll-driven.
From April 1, employers had to start contributing to their employees' KiwiSaver accounts. While the tax credit covered most of the costs in the first year, it would start to affect costs greatly next year.
‘‘My pick is the Government will make the decision to move on tax cuts and have them introduced by October 1. People will have more money in their pockets before the election,'' he said.
Mr Bagrie said the business cycle had to be taken into effect when reading through the out look numbers.
Booms were invariably followed by periods of consolidation.
Having experienced the longest period of economic expansion since the 1960s, the New Zealand economy found itself entering the latter stage of the cycle.
Imbalances built up during the expansion phase would be purged.
‘‘Brace for leaner times. To those that have been cautious and patient late in the cycle such times are likely to provide opportunity,'' he said
