Confidence on rise despite global indications of jitters

Phil O'Reilly
Phil O'Reilly
Confusing messages about business confidence were released yesterday as speculation continued as to whether or not the United States economy was headed for another recession.

BNZ chief economist Tony Alexander headlined the BNZ's latest confidence survey with "confidence recovers".

BusinessNZ headlined its latest planning forecast with "NZ economy performing despite ongoing global jitters".

However, ASB economist Jane Turner said in her weekly report that there were signs the global uncertainty had begun to affect confidence in New Zealand, with the latest monthly business confidence survey showing a drop in positive sentiment in August.

"In particular, the heightened volatility offshore has made businesses more cautious about expanding their operations, as reflected in the decline in both hiring and investment intentions."

The BNZ sends its survey out to customers and this month, 531 people responded, the highest number since February.

A net 36% of respondents expected the economy to be in better shape in a year's time compared with a net 22% in August and a net 45% in July.

"While hopes are high for stronger economic activity next year, the tone of the comments submitted by respondents about current conditions in their sectors remain largely, though not completely, downbeat," Mr Alexander said.

One theme running through the responses was that some business activity had been put on hold ahead of the Rugby World Cup and other activity was expected to be similarly sidelined until the competition was over.

Overall margins still appeared tight and while there was concern from exporters about the exchange rate, that concern was not as strong as expected, he said.

In residential real estate, listings remained in short supply, Auckland was shifting towards a seller's market but there was no flood of buyers, with most seemingly cautious.

The construction sector remained weak and in September, there were noticeably more expressions of concern about factors delaying building in Christchurch, Mr Alexander said.

BusinessNZ chief executive Phil O'Reilly said that despite ongoing global jitters, the New Zealand economy continued to improve, as seen by several forward-looking economic indicators.

International commodity prices had come off their recent highs and the volatility of the dollar against the US currency was affecting exporter confidence.

But both actual and forward-looking data showed the New Zealand economy was proving to be relatively resilient to international events, assisted to some extent by the relative strength, to date, of the country's major trading partners - Australia and China.

"On the government front, Moody's credit rating agency still has New Zealand on notice of a credit rating downgrade if the country does not sort out its ballooning deficits and mounting government debt."

While Moody's commended New Zealand's flexible and market-oriented economic policies as a key factor in supporting a stronger economy less prone to external shocks, the country had to address its fiscal deficits and the resultant upward trend in government debt ratios, Mr O'Reilly said.

Hard choices had to be made in the next year or so in respect of the big expenditure items such as New Zealand Superannuation.

"It will also be necessary to deal with low-quality expenditure and middle-class handouts, not simply tinker with them, as happened with the last Budget," he said.

Ms Turner said uncertainty in global markets remained the dominant theme and she expected that would keep the Reserve Bank holding the official cash rate at 2.5% at its September meeting.

The central bank had indicated at the July review it would take back the 0.5% "insurance cut" once the global risks had receded.

Developments in both the United States and in the euro zone had instead pointed to an increase in down-side risks in the global growth outlook, Ms Turner said.

 

 

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