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NZIER’s QSBO shows sharp fall in activity with businesses still downbeat - Quarterly Survey of Business Opinion, July 2020

Written by The NZIER Team | July 07, 2020

New Zealand Institute of Economic Research (Inc)
Media release, 7 July 2020
NZIER Quarterly Survey of Business Opinion
Embargoed until 10am 7 July 2020

The latest NZIER Quarterly Survey of Business Opinion (QSBO) surveyed firms over the main period of the COVID-19 lockdown.

The results show New Zealand economic activity dropped sharply in the June quarter. The net 37 percent of businesses reporting a decline in own trading activity brings this measure to the lowest level since March 2009. This is not surprising, given the tight trading restrictions under Alert Level 4.

However, a net 25 percent of businesses also expect weaker demand in the next quarter. And although there was a slight improvement in headline business confidence, businesses remain pessimistic about general economic conditions over the coming months. Business confidence tends to soften heading into a general election, with businesses holding off on major spending decisions given uncertainty over the outcome. This quarter, the pre-election uncertainty is compounded by uncertainty over how the COVID-19 outbreak will play out.

Firms reduce staff numbers and investment

Firms have become even more cautious and have pared back on headcount and business investment. A net 19 percent of businesses reduced staff numbers in the June quarter, and a net 28 percent expect to in the next quarter – the lowest level since March 2009. The New Zealand labour market has undergone some major changes, with firms reporting it is now easy to find staff – a sharp turnaround from the acute labour shortages reported in recent years. Fewer businesses also saw labour as the main constraint on growth.

Businesses are also planning to reduce investment, with a net 36 percent planning to reduce investment in both buildings and plant and machinery over the coming year.

Building sector outlook subdued

Caution among businesses about investing in buildings is having a negative impact on the construction sector. The construction sector is now the most pessimistic of the sectors surveyed in the QSBO, with a net 75 percent of building sector firms expecting a deterioration in economic conditions over the coming months. Even prior to the COVID-19 outbreak, commercial construction was facing headwinds with banks tightening up access to finance in preparation for increased capital requirements.

The subdued outlook for construction is reflected in architects’ measure of activity in their own office, with a particularly large decline in the commercial construction pipeline expected over the coming year.

Other sectors also downbeat

Manufacturing sector firms also feel pessimistic, as weak demand puts downward pressure on prices and drives a further deterioration in profitability. Manufacturers reported a weakening in both domestic and export demand.

The retail sector was the exception to the overall trend of a moderation in cost pressures and firms cutting prices in the face of weaker demand. Retailers reported cost increases, likely reflecting the impact of social distancing and other operational requirements. However, retailers have been able to pass on increased costs by raising prices, despite weaker demand.

The services sector turned from one of the most pessimistic to the least pessimistic of the sectors surveyed. That said, a net 61 percent of services sector firms still expect a deterioration in economic conditions in the coming months. This was despite the expectation that interest rates would fall further over the coming year.

Sharply lower demand while business confidence stabilises at a low level

Source: NZIER

For further information please contact:
Christina Leung
Principal Economist & Head of Membership Services
Ph +64 21 992 985 | Email christina.leung@nzier.org.nz