New Zealand Institute of Economic Research (Inc)
Media release, 12 April 2022
NZIER Quarterly Survey of Business Opinion
Embargoed until 10 am 12 April 2022
NZIER’s QSBO shows Omicron’s impact on activity and confidence
The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows the wide spread of the more transmissible Omicron variant of COVID-19 reduced activity and business confidence in the March quarter. Despite the relaxation of lockdown and other restrictions since early December, many people stayed home due to infection, self-isolation or fear of infection. This has had a negative impact on both demand and supply, particularly in the retail and services sectors.
A net 33 percent of businesses surveyed expect a weakening in general economic conditions over the coming months on a seasonally adjusted basis, while a net 9 percent of businesses reported weaker activity in their own business in the March quarter.
We have revised the QSBO overall capacity utilisation (CUBO) measure over the period March 2021 to December 2021 to correct previous processing errors. These revisions are highlighted in the tables in our report as bolded italicised figures for the March 2021 to December 2021 quarters. The sub-set of CUBO and all other measures are unaffected. We regret these errors and apologise for any problems these may have caused.
The retail sector is now the most downbeat
The retail sector is now the most downbeat of the sectors surveyed, with a net 60 percent of retailers surveyed expecting a deterioration in general economic conditions over the coming months. This pessimism likely reflects the relatively greater negative impact the spread of Omicron has had on the retail sector, as people stay home out of fear of (or actual) infection. The retail sector also bore the brunt of worker shortages that arose from the Omicron spread, given the limited ability of its workforce to work from home.
Similarly, the services sector is also feeling downbeat given the negative impact of the Omicron spread on services activity and rising interest rates. An overwhelming 95 percent of services sector firms expect interest rates to increase over the coming year, given the surge in inflation pressures in the New Zealand economy.
Sentiment in the building sector has stabilised at a low level, with the outlook for the building sector mixed. Although construction activity is solid, the architects’ measure of work in their own office points to a softening in the pipeline of commercial and Government construction work.
Intense inflation pressures reduce profitability
Overall, businesses are feeling more cautious in an environment of acute labour shortages and intense cost pressures. Although firms have generally found it easier to increase prices, profitability is weakening. A net 34 percent of firms report reduced profitability in the March quarter, while a third expect weaker profitability in the next quarter.
Businesses pare back on investment amidst heightened uncertainty
With the negative impact of the Omicron spread becoming more apparent and continued uncertainty over how the COVID-19 outbreak will evolve, firms have reduced investment plans for the coming year. A net 7 percent of firms plan to pare back on investment in buildings, while 6 percent of firms plan to reduce investment in plant and machinery over the coming year. This weakening in investment intentions points to a slowing in business investment over the coming year.
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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