Business Conditions Turn Down

Thursday, June 27th, 2002

A large downturn in business confidence and a sudden rise in business concerns are reported in the Employers & Manufacturers Association (Northern) survey of Business Conditions for May.

The survey shows a net 11 per cent believe turnover and profitability are about to get worse, said Bruce Goldsworthy, Manager of Manufacturing Services for the Employers & Manufacturers Association (Northern).

"This represents a big trend change from a month ago.

"Last month all respondents in the sample thought business conditions would either improve or remain the same; now 29 per cent think things are about to worsen.

"Domestic sales for manufacturers in the north were 7 per cent less than May last year, though exports were 22 per cent higher. Domestic sales account for 64 per cent of the total turnover of the sample.

"A sudden rise in business concern centres on the exchange rate (42 per cent, up from 26 per cent last month and the cost of electricity (19 per cent, up from 11 per cent last month).

"24 per cent of respondents expected to raise their prices; just 7 per cent were planning to last month.

"Price increases were occurring because of electricity costs (36 per cent, up from 23 per cent last month and 14 per cent in March), and wage settlements (36 per cent, up from 31 per cent last month).

"Despite the significant trend change, the positive factors are that investment and employment intentions are holding at about present levels, and average capacity utilization levels have stayed the same all year just under 75 per cent.

"The figures bear out the slackening of business confidence reported in last month's National Bank survey.

"Given the sudden rise in the exchange rate recently, which is being driven by our unfavourable interest rate differential with overseas as well as the weakening US dollar, the uncertain outlook for markets in Europe and the US, and the large fall in our commodity prices, we see no reason for the Reserve Bank to raise interest rates again next week.

"Any interest rate increase into the present fragile business conditions would be extremely premature."

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