New Zealand Institute of Economic Research (Inc)
Media release, 20 October 2020
NZIER Quarterly Survey of Business Opinion
Embargoed until 10am 20 October 2020
The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows business confidence has improved, reflecting a pick-up in demand over the September quarter.
A net 1 percent of businesses reported an increase in own trading activity – a turnaround from the net 37 percent reporting a decline in the previous quarter. This result supports our expectations of a V-shaped recovery in economic activity, as the New Zealand economy responds to the unprecedented amount of stimulus measures implemented by the Government and Reserve Bank.
Nonetheless, businesses on the whole are still feeling downbeat, but this pessimism is reducing with a net 39 percent of businesses expecting a deterioration in general economic conditions over the coming months – lower than the 58 percent in the previous quarter.
We surveyed firms over an extended period from 17 September to 13 October 2020. This means the latest QSBO captures the effects of the discovery of new community cases in Auckland on 11 August which saw the region move back up to Alert Level 3 while the rest of the country moved to Alert Level 2. The survey period over this quarter was extended given the disruptions, particularly with the enforcement of another lockdown in Auckland.
Firms more positive about hiring and investment
As demand picks up, firms are feeling more positive about expanding. This is particularly the case when it comes to hiring, with a net 16 percent of firms looking to increase headcount in the next quarter. This recovery in employment demand has seen skilled labour shortages re-emerge, with a net 18 percent of businesses reporting difficulty in finding skilled labour. Although firms are still cautious about investment with a net 10 percent of businesses planning to cut back on investment in buildings, this caution is ebbing. Uncertainty over the general election and how the COVID-19 outbreak will evolve is likely driving this caution. The decisive outcome of the general election should remove one aspect of uncertainty, which should drive a continued improvement in investment intentions.
Building sector now the most confident
An improved pipeline of construction work has driven a turnaround in construction sector sentiment, with the building sector now the most buoyant of the sectors surveyed. A net 7 percent of construction sector firms expect an improvement in the economy over the coming months, reflecting increased construction demand across residential, commercial and Government work. The Government’s focus on increased infrastructure spending to stimulate the economy has boosted domestic demand in the construction sector.
Other sectors more cautious
Other sectors are more cautious about the economic outlook. Although retailers report stronger demand and increased pricing power, profitability in the retail sector remains subdued given intense cost pressures.
Manufacturers are also feeling less pessimistic, despite weak export sales in the September quarter. Profitability expectations are improving, and that is making manufacturers feel more positive about hiring.
The services sector is now the most pessimistic of the sectors surveyed, with a net 49 percent of firms expecting a worsening in general economic conditions over the coming months. The lockdown and border restrictions have had a severe negative impact on accommodation and hospitality businesses, and there remains a large degree of uncertainty over when restrictions will be relaxed.
Building sector now the most buoyant as pipeline of construction increases
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The New Zealand Institute of Economic Research has conducted its Quarterly Survey of Business Opinion since 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 at www.nzier.org.nz.