Business confidence at ‘stall speed’
Business confidence took a dive in July, with the key measure of businesses' own prospects falling to its lowest level since May 2009, Thomas Coughlan reports.
Grant Robertson should be happy the Crusaders are off to the Super Rugby final and not just because he’s the Minister of Sport.
His colleague, Trade Minister David Parker, has made the point in the debating chamber that points scored by the Canterbury Crusaders have a stronger historic correlation with GDP growth than the ANZ business survey.
But Robertson was not so cavalier on Tuesday, as ANZ’s business confidence survey saw business confidence continue to fall. Headline business confidence fell to net 45 percent negative, the lowest since May 2008.
Firms’ confidence in their own outlook fell five points to just four percent positive. That’s significant because firms’ confidence in their own outlook is a much better indication of future economic growth.
Robertson’s usual defence against sliding business confidence numbers is to look at firms' own intentions. He made this defence in the house just over a month ago.
No more good intentions
ANZ Business Outlook survey for July reveals some alarming trends. A net one percent of firms are expecting to lift investment, down three points from last month.
Profit expectations fell to a negative 16.8 percent.
Construction intentions for residential dwellings fell two points to 16 percent positive, while commercial construction tumbled six points to negative 17 percent, its lowest since 2010.
A net 37 percent of businesses expect it will be more difficult to get credit. This is being driven by Australian banks, which dominate the New Zealand sector, tightening lending restrictions.
The only good news in the survey is that hiring intentions rose to two percent, up from one percent. This lift was strongest for services. Retail, construction and agriculture hiring intentions all remain negative.
Most of the numbers are the continuation of a long-term trend. The Government’s industrial relations strategy and its policy to raise the minimum wage by 35 percent to $20 an hour by 2021 and the abolition of the 90-day trial for larger businesses have been unpopular with business.
NZIER’s quarterly business confidence report from May noted that cost pressures were mounting on businesses, as seven percent saw profitability decline over the quarter as a result of wage increases.
Businesses report finding it difficult to pass cost pressures onto consumers, which results in declining profitability, investment intentions, and low business confidence.
Bridges points the finger and says ‘no’ to expansion
National leader Simon Bridges laid declining business squarely at the feet of the current Government, saying there was “no other explanation for what is happening”.
“The only credible explanation for this is a lack of leadership, poor policies and uncertainty that is stalling our economy."
He said that banks privately told him that the Government was to blame.
“Banks have made clear to me privately there is no other credible explanation for this than Government actions, their lack of leadership, their poor policies and the uncertainty they are creating in the economy,” he said.
Bridges said the policies of the current Government were having the same effect on business confidence as the GFC a decade ago.
The comparison may be slightly hyperbolic. The economy is still growing. Businesses’ own intentions may be at May 2009 levels, but by that time the New Zealand economy was on its way out of recession, which officially ended in September 2009.
Bridges said he would not be in favour of future expansionary policies to stimulate the economy.
“I don’t see how that would help in any significant way,” Bridges said.
“We borrow for global shocks and natural shocks,” he said.
The earliest this could happen is if Reserve Bank Governor Adrian Orr decides to cut interest rates when he makes his OCR decision on August 9. Orr has previously said that he maintains a balanced view that rates could go either up or down.
Observers will keenly await labour market figures, due tomorrow, which are expected to show the unemployment rate unchanged at 4.4 percent, although if poor hiring intentions were to see that tick upwards, it might encourage the Reserve Bank, emboldened with its new dual mandate, to act.
Will the uptick ever come?
Business confidence has been persistently low since Labour took office, conforming to a long-run prejudice against Labour governments.
Robertson often reminds journalists that between 2000 and 2008 under the fifth Labour government, business confidence was pessimistic 82 of 99 months, but GDP growth averaged 3.2 percent a year.
Robertson repeated this today but noted that most economists expected the economy to pick up in the second and third quarters of this year, as stimulus in the form of the $2 billion families package flows through into the economy.
This is a view shared by most bank economists, Treasury, and the Reserve Bank
Some economists less sure
Independent economist Cameron Bagrie told Newsroom that low business intentions could derail this recovery as economic theory “goes out the window” when firms sense uncertainty. He described the economy as being at "stall speed".
“From a theoretical perspective, there should be a bit of nice growth in the back half of 2018 and early 2019 – that’s the theory, the problem is that economic theory can go right out the door when you’ve got very high uncertainty which is what you’ve got at the moment,” Bagrie said .
"When uncertainty is high, firms just don’t tend to do anything – there’s an extra crouch, before you engage,” he said referencing a rugby scrum.
No doubt Robertson will be hoping for a high-scoring game when the Crusaders take on the Lions this Saturday.
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