NZ business optimism increasing but well down on last year

Press release
17 January 2011

News release

NZ business optimism increasing but well down on last year

Business optimism in New Zealand is increasing and remains above the global average, but it lags well behind levels of 12 months ago, according to the 2011 Grant Thornton International Business Report (IBR).

Optimism has fallen from +66% to +35% since a similar survey in 2010, a fall mirrored to an even greater extent in Australia (+79% to +37%) and to a lesser level in China (+60% to +35%).

Greg Thompson, National Director, Tax, for Grant Thornton New Zealand, said that while a recent Institute of Economic Research survey indicated confidence levels have lifted slightly in recent months, other factors such as international uncertainty, a high dollar and impending general election were keeping a lid on this confidence.

“Household caution has weighed on consumer spending and housing market activity. This is expected to persist into 2011.

“There are increasing concerns regarding inflation, which is expected to surpass 4% in 2011. There are also fears of a policy response in the form of higher interest rates with high levels of private sector external debt resulting in a downgrade of the country’s credit rating. Economic recovery is tepid and the pace of recovery has slowed,” he said.

Thompson said that in Australia many exporters have come under pressure from a strong AUD which remains close to parity with the USD.

“Interest rates have risen from the low level of a year ago pointing to the possibility of some easing in consumer demand in the year ahead. Global growth prospects are also slightly less favourable than they seemed a year ago ahead of the expected bounce back from recession.

“And the present Queensland floods will also have a negative impact on confidence levels,” he said.

Latin America buoyant

Latin America leads the world in optimism with a balance of +75% of privately held business owners being optimistic about their region’s economic performance in 2011. Elsewhere, optimism in the Asia Pacific region (excluding Japan) is at +50%, whilst in North America it is just +26%, with Europe the least optimistic region at +22%.

Latin American figures were dominated by Chile (+95%) which recorded the highest optimism of any country surveyed followed by neighbours Brazil (+79%), Argentina (+70%) and Mexico (+64%).

The IBR survey said that in recent years the focus for emerging economies has been on the BRIC economies of Brazil, Russia, India and China. However, Latin America has come a long way.

“The region as a whole is expected to see GDP growth of around 4% in 2011 and if the current business confidence translates to widespread, sustained growth, the next decade could see Latin America truly realise its potential. If the economic story of the last decade was about the BRICs, these results suggest the next decade will be about Latin America.

“The success and growth of Brazil has a big impact on its neighbours. The country’s sustained economic growth, which is forecast by the IMF to be 7.5% for 2010, is buoying the region and spreading optimism to neighbours in Chile, Argentina and Mexico. It is also impossible to ignore the knock-on effects right across the region since Brazil won the right to host the 2014 World Cup and the 2016 Olympics. These events will provide a real economic boost for all of Latin America and that has undoubtedly translated into a sense of confidence and optimism," the report said.

Optimism swings and a polarised Eurozone

The 2011 IBR reveals some big swings in optimism levels in key economies. Businesses in Germany are the most optimistic in the Eurozone at +75% – an optimism which has surged over the past year (2010: +38%). In addition Finland (+57%), Belgium (+45%) and the Netherlands (+19%) are all experiencing high levels of business confidence going into 2011. However, going into 2011 confidence is understandably low throughout those Eurozone economies experiencing sovereign debt troubles with Ireland (-45%), Spain
(-50%) and Greece (-44%) at the bottom of the global league table.

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Notes to editors
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of over 11,000 businesses per year across 39 economies. This unique survey draws upon 19 years of trend data for most European participants and nine years for many non-European economies.

Data collection
The research is carried out primarily by telephone interview lasting approximately 15 minutes with the exception of Japan (postal), Philippines and Armenia (face to face), mainland China and India (mixture of face-to-face and telephone) where cultural differences dictate a tailored approach. Telephone interviews enable Grant Thornton International to conduct the exact number of recommended interviews and to be certain that the most appropriate individuals are interviewed in an organisation which meets the profile criteria.
Data collection is managed by Grant Thornton International's core research partner - Experian Business Strategies. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Q4-2010 fieldwork took place in November/December 2010.
Sample
IBR is a survey of medium to large privately held businesses, researching the opinions of over 5,700 businesses in Q42010, and over 11,000 on an annual basis. The target respondents are chief executive officers, managing directors, chairmen or other senior executives (title dependent on what is most appropriate for the individual country) from 39 economies primarily across five industries: manufacturing (25 per cent), services (25 per cent), retail (15 per cent) and construction (ten per cent) with the remaining 25 per cent spread across all industries.
Locally, the sample tends to cover the industries mentioned previously, with some countries being able to have local valid data for specific sectors or regions when the sample size is large enough.

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