Auckland Business Slide Bottoms Out….?

30 June 2003

Media Release

Auckland Business Slide Bottoms Out….?

One interpretation of the information from the Auckland Chamber of Commerce survey of business confidence is that Auckland businesses are poised, but whether it is for a rise or a further dip in optimism will not be revealed until September.

Those expecting the economy to remain the same during the next 6 months rose 2% to 50%, expectations of a deterioration dropped 3% to 33% and optimism lifted 2% to 16%.

One thing is certain – Auckland businesses are predicting the general business climate will remain tight over the next 6 months, while increasing numbers believe their own prospects will deteriorate.

Eighty-three per cent (83%) of Auckland businesses surveyed last week now expect the economy to deteriorate or remain the same during the next six months.

This outcome is just a 1 point difference from the previous survey in March, when 84% of businesses predicted the general business situation to deteriorate or remain the same, which was in turn a 15 point drop on the 69% level of pessimism recorded in the December survey last year.

However, this latest outcome is almost the complete reversal of the responses to the same questions a year ago (June 2002) when 81% of businesses expected the economy to improve or remain the same during the next six months.

Reinforcing the replacement of the high levels of optimism of a year ago with a gradually deepening mood of pessimism this year, 33% of respondents now believe the general business situation will get worse over the next six months, compared to just 15% in the June 2002 survey.

In contrast, just 16% of respondents now predict the general business situation to improve over the six months, compared to the 35% who were positive about future prospects in the survey conducted a year ago.

While most individual businesses continue to be optimistic overall about their own prospects, reinforcing the increased pessimism around Auckland is a finding that 51% of respondents believe that their own business' situation will deteriorate or stay the same in the next six months, compared to 35% in a similar survey a year ago.

Significantly, in every survey since June last year, the numbers of businesses predicting their own prospects to deteriorate in the period ahead has increased.

In June last year, just 5% of businesses were picking their own prospects to get worse, and 61% to improve. Since June last year, the number of pessimists has gradually increased by 2-to-3% each survey to now stand at 11%, with just 48% now prepared to predict that their own prospects will improve in the next six months.

These are among the main findings of a regular survey of Chamber of Commerce members on how they view business prospects in the period ahead.

The survey was conducted by internet last week. Of 706 responses analysed, 87% indicated that they employ 50 or less people.

In other key findings:

On interest rate trends over the next 12 months, expectations of lower interest rates continue to rise. Fifty-six percent (56%) now believe interest rates will decrease compared to 29% in March, 9% in December, 8% in September and 2% in June 2002.

In contrast, just 9% of respondents now believe they will rise compared to 21% in March, 30% in December, 44% in September and 80% in June 2002.

Twenty-nine percent (29%) of those surveyed predict interest rates will remain the same over the next 12 months, compared to 45% in March and 55% in December.

Commenting, Chamber of Commerce Chief Executive Michael Barnett said it is very obvious that the high level of business optimism in Auckland a year ago is gradually eroding.

“There are some obvious drivers of the increasing pessimism - the unpredictable international situation, America’s Cup loss, the drop in tourism numbers and the impact on Auckland of lower commodity prices for exports and the higher dollar.”

“However, the comments by survey respondents in respect of their own business situation suggest some other persistent factors may be just as relevant to explaining why business confidence in Auckland appears to be on a long-term decline,” said Mr Barnett.

This is a ‘here-and-now’ survey of what 700 Auckland businesses said in the last few days. “It is very clear many businesses are citing the time and cost involved in recruiting suitable skilled staff, frustrations associated with getting around the region and constant reference to the difficulty and risk associated with investing and relocating to bigger
premises to expand the business beyond Auckland and in particular offshore.”

Even if predictable, the survey findings are not good news, he said. “Judging from the comments of respondents, there is no one factor holding Auckland business back. The survey results reinforce that many individual businesses are confident about their capacity to grow to a certain level of productivity but then come up against huge problems re-organising their situations and operations to do better.”

For example, continuing to be a huge worry is that businesses persistently say it remains difficult to find suitable staff. Thirty-nine per cent (39%) of businesses say in this latest survey that it is harder to find skilled staff than three months ago, matching the results to the same question of the last four surveys - 37% in June 2002, 39% in September 2002, 44% in December 2002 and 38% in March 2003.

As in previous surveys only a small number – 7% in both June 2002 and 2003 and 6% in the other two surveys - say it is getting easier to locate suitable staff.

Similarly, demand, finance and capacity persist as the three most limiting factors cited by businesses as to why they don’t expand. As in previous surveys, nearly 60% of businesses employing five or fewer cited finance as the most limiting factor to growing their business. Meanwhile bigger businesses cited demand as the main constraint to growth

For more information contact: Michael Barnett.

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