Business confidence bounces back strongly

Business confidence bounces back strongly, weak profits persist

by Pattrick Smellie

July 5 (BusinessDesk) – Business confidence has bounced back strongly across the board, including Canterbury, although profitability remains weak and some headwinds are evident in the export sector as the economies of Asia and Australia slow their recent growth.

The latest Quarterly Survey of Business Opinion from the New Zealand Institute of Economic Research shows a net 31% of firms are optimistic about the outlook for the immediate future, compared with net 11% pessimism in the March survey, which immediately followed the Feb. 22 earthquake, which devastated swathes of Christchurch.

The survey was two-thirds complete when Christchurch was rocked by further large after-shocks on June 13, but NZIER didn’t analyse the post-June 13 results for signs of changed sentiment in Canterbury in the last third of responses.

While skilled labour is becoming harder to find and manufacturers say domestic sales are improving, hiring in the last quarter fell by a net 6%, compared with a 2% net rise in the March quarter, and capacity utilisation edged back to 88.7% from 89.4%.

The survey also found improving profitability among small and medium businesses, with larger firms reporting tougher trading, a reversal from several previous surveys, where the hardest times were being experienced by smaller enterprises.

However, the overall ongoing weakness of economic conditions is clear from the fact that a net 22% of firms across the country reporting they were unprofitable in the last quarter.

Canterbury firms’ profitability improved from a net 48% negative in March to a net 36% negative, and are expected to return to national levels.Still, the overall expected profitability in the quarter ahead dramatically better, with just 1% negative expectations in the latest survey.

“Indicators are still mixed,” NZIER said in its commentary on the survey, which reflects businesses’ views of their own and others’ performance rather than being an economic forecast.

The financial services sector remained particularly weak, reflecting particularly the impact of the quakes on the banking and insurance sectors.

“Volumes for financial services firms are the lowest on record,” NZIER said.

Spare capacity in the construction and building materials sectors remains high, but the building industry is clearly anticipating the Canterbury rebuild, and plant and equipment investment intentions have jumped in the region.

Building investment intentions in Canterbury were a positive 24%, unchanged from the previous quarter, while New Zealand-wide building intentions were a negative 9%.“Plant investment intentions soared in Canterbury (+24% from +8%) as they rebuild capacity after the earthquake.”

However, weak profitability, soft demand and ongoing economic uncertainty is constraining investment intentions outside the Canterbury region, despite being at post-recession highs because of the quake rebuild demands.

“The conditions point to some modest economic growth. There’s lots of confidence out there. Precisely where that comes from is uncertain,” said NZIER’s chief executive Jean Pierre de Raad.

“There are still some signs in other indicators that all is not well, particularly the employment figures’ performance over the last quarter.”

Employers shed workers in the quarter, with a net 2% decline in past hiring, compared with a 6% increase in the March quarter, while overtime also dropped back slightly. Hiring intentions, however, look stronger, rebounding to a net 7% intending to hire in the current quarter, compared with negative 4% three months ago.

Manufacturers are seeing an easing in export sales, with a slower global economy and a jump in negative business sentiment among Australian firms, which went from 25% net positive sentiment in March swinging to 9% negative sentiment in June.

Firms’profit margins remained subdued and lack of demand remained a major factor in being unable to raise prices, NZIER said, so there was little pressure on the Reserve Bank of New Zealand to raise interest rates to contain inflation.

(BusinessDesk) 10:02:52

© Scoop Media