Why business confidence just won’t pick up
ANZ's business confidence survey for March due on Thursday will provide the latest reading of whether companies are starting to get over the funk that has dogged them since the current government was formed.
The February reading was unexpectedly negative, with the headline index sinking to minus-30.9 percent from minus-24.1 percent in December. There is no data in January.
“There's no shortage of things to worry about when you see the headlines from overseas,” says Mark Lister, the head of wealth research at Craigs Investment Partners.
The trade war between China and the United States, evidence of slowing growth in the major economies and the ongoing Brexit mess all help to create uncertainty, a situation business owners hate.
And the local data can look negative if looked at from the wrong end of a telescope.
For a start, house prices in Auckland have fallen a little. “If you're a small business in Auckland, you will be seeing evidence of that tailwind,” Lister says.
And while the Global Dairy Trade Index is rising nicely, a key reason for that is the dry weather of recent months, particularly in the North Island, which means dairy production volumes are down.
Immigration is also probably heading down, although the change in the way the data is collected means the near-term data is the opposite of reliable.
Lister says company results from Tourism Holdings and Air New Zealand suggest the direction is down.
Tourism Holdings, for example, posted a 23 percent decline in first-half profit and lowered its guidance for the full year.
Typically, the tourism arrivals data and the net immigration figures have tracked pretty well with such company reports.
Still, the GDP data from last week showed the economy grew 0.6 percent in the December quarter, up from a 0.3 percent increase in the previous quarter.
Comparing the December quarter with the same quarter a year earlier, the economy grew 2.3 percent.
“Economic growth has moderated from the very strong levels of a few years ago and is now fairly close to the long-term trend,” Lister says.
He puts the low ebb of business confidence down to government policy and says business owners are probably reacting to the recent report of the tax working group and its recommendations for a capital gains tax.
“Small businesses will be worrying about what significant changes to tax policy will mean for them. They probably have been a bit spooked by that,” Lister says.
Not only are companies grappling with policy changes but they're also having to deal with rising cost pressures in an environment in which it's difficult for them to raise prices.
“If you're small business, you're probably looking out there and seeing there seem to be a lot of risks, there seem to be significant economic trends which are going to put pressure on my top line.”
For example, wages are rising as the government ramps up the minimum wage.
Lister says he sees this sort of mood particularly in Auckland but that as he travels around the country, the mood is more vibrant outside the nation's largest city.
A fair chunk of ANZ's respondents are most likely businesses in Auckland.
“A lot of those fears are probably a little unwarranted – the economy's still in pretty good shape,” Lister says.
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