New Zealand Institute of Economic Research (Inc) Media release, 4 April 2017 NZIER Quarterly Survey of Business Opinion Embargoed until 10am 4 April 2017
The latest NZIERQuarterly Survey of Business Opinionshows a modest drop in business confidence in the first quarter of 2017. A net 16 percent of businesses expect better economic conditions over the coming months, a fall from a net 26 percent of businesses in the previous quarter.
The decrease in confidence comes despite businesses reporting their own activity holding firm, suggesting annual growth in the New Zealand economy will remain solid around 3 percent over the coming quarters.
There was an easing in business confidence in the regions that were particularly buoyant late last year. For example, confidence eased in Auckland, Wellington and Southland, but businesses in these regions continue to expect better economic conditions ahead. In contrast, confidence lifted in Auckland’s ‘halo’ regions of Northland, Bay of Plenty and Waikato.
Confidence easing across the sectors
Confidence fell in all sectors surveyed, but sentiment remains positive in the building sector, with a net 31 percent of businesses expecting an improvement in economic conditions over the coming months.
Building firms also report a continued easing in the shortage of unskilled labour, although skilled labour remains very difficult to find. With the surge in net migration driven by an increase in the numbers of people coming in on work visas in the trades profession, this is helping to alleviate some of the labour shortages as construction activity continues to grow.
There was also a decline in confidence in the manufacturing and retail sectors. Demand indicators such as output and new orders were mixed, but point to a still-solid sales outlook. Nonetheless, there is more caution when it comes to hiring, particularly amongst retailers.
Further lift in inflation likely
Cost and price indicators point to a further lift in inflation over the coming year. Capacity utilisation amongst builders and manufacturers lifted to a record high of 93.6 percent in the March 2017 quarter. Businesses are also finding it easier to raise prices, particularly in the building sector.
This continued improvement in pricing power will be welcome for the Reserve Bank, given its concern last year that inflation would remain persistently low. However, with inflation lifting from a low base we expect the Reserve Bank will hold off lifting the Official Cash Rate until the middle of next year.
Business confidence is easing in Auckland, but strengthening in its neighbouring regions
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