New Zealand Institute of Economic Research (Inc) Media release, 2 April 2019 NZIER Quarterly Survey of Business Opinion Embargoed until 10am 2 April 2019
The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows businesses started 2019 more downbeat about the economy. A net 27 percent of businesses expect a deterioration in general economic conditions over the coming months – close to levels seen back in the September 2018 quarter.
Of more concern was the decline in firms’ own domestic trading activity, with a net 1 percent of businesses reporting weaker demand in the first quarter of 2019. This is in contrast to the net 4 percent of businesses that had seen an increase in demand in the December 2018 quarter. Firms’ own trading activity is a better measure of economic growth, and the results suggest a further softening in annual GDP growth over the first quarter of 2019.
Weaker domestic demand across most sectors
Businesses across most sectors reported a weakening in domestic demand. In particular, manufacturers remained the most pessimistic, as domestic sales dropped sharply. In contrast, export demand strengthened despite the increasingly uncertain global growth outlook. Cost pressures remain intense in the sector, and with pricing still subdued, this is contributing to continued weak profitability.
The outlook for the building sector is also gloomy, with firms reporting weaker construction demand. The architects’ measure of work in their own office also points to a softening in the pipeline of residential and commercial construction over the coming years. Despite the increase in cost pressures, a net 14 percent of building sector firms cut prices in the March 2019 quarter. This drove a sharp decline in profitability in the building sector.
Profitability remains weak
Businesses are finding it increasingly difficult to raise prices despite rising cost pressures. This is contributing to continued weak profitability. However, more firms are looking to recoup margin by raising prices next quarter.
Firms more cautious about expansion
With firms expecting profitability to remain weak over the next quarter, there is more caution when it comes to expansion plans. This is particularly the case for business investment, with a net 2 percent expecting to reduce investment in plant and machinery – the weakest level since March 2012.
Firms are also more cautious about hiring, although a net 6 percent of businesses are still looking to increase headcount. Despite the softening in hiring, labour shortages remain acute. This should support a further lift in wage growth over the coming year.
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