New Zealand Institute of Economic Research (Inc) Media release, 15 January 2019 NZIER Quarterly Survey of Business Opinion Embargoed until 10am 15 January 2019
The latest NZIERQuarterly Survey of Business Opinion(QSBO) shows businesses remained downbeat about the economy in the final quarter of 2018, but less so. The results can be summarised as “less gloomy” rather than “more happy”, with a net 18 percent of businesses expecting general economic conditions to worsen over the coming months. This is a decline from the net 28 percent of businesses who had expected a worsening in the previous quarter.
More positively, businesses reported a lift in demand in the December 2018 quarter. Firms’ own trading activity is a better indicator of GDP growth than business confidence. Both own activity for the December quarter and expectations for the next quarter picked up, with a net 4 percent of businesses reporting an increase in demand in the final quarter of 2018.
Firms looking to hire and invest
Improving demand is making firms more optimistic about expanding. There was a rebound in hiring in the December quarter, while hiring intentions for the next quarter remain positive.
Firms are also looking to increase new investment in plant and machinery over the coming year. However, firms are more cautious when it comes to new investment in buildings. This caution is also reflected in architects’ expectations of commercial construction work over the coming year, with architects expecting no growth in this pipeline of construction work.
Cost pressures continue to impact negatively on profitability
Businesses are facing rising cost pressures, and continue to find it difficult to pass these cost increases onto customers in the form of higher prices. This is affecting profitability negatively, with a net 22 percent of businesses reporting a deterioration in profitability in the December quarter. This development was pervasive across most sectors.
Concerningly, there has been an increase in the proportion of businesses expecting a worsening in profitability in the next quarter. A net 15 percent of businesses expect profitability to decline in the next quarter – the weakest level since March 2011.
Manufacturers remain the most pessimistic
Although confidence in the manufacturing sector picked up in the December quarter, it remains the most downbeat. Despite a rebound in domestic and export sales, weak profitability continues to weigh on sentiment in the sector.
Similarly, confidence in the building sector remains soft despite an improvement in demand, with this sector also hampered by weak profitability.
Businesses are less downbeat about the economy, and also report stronger demand
The New Zealand Institute of Economic Research has conducted itsQuarterly Survey of Business Opinionsince 1961. It is New Zealand’s longest-running business opinion survey. Each quarter we ask around 4,300 firms about whether business conditions will deteriorate, stay the same, or improve. The responses yield information about business trends much faster than official statistics and act as valuable leading indicators about the future state of the New Zealand economy. Long term series derived from the survey are held at the NZIER and are available to NZIER members via our website atwww.nzier.org.nz.