NZ business confidence worsened in March

NZ business confidence worsened in March amid global jitters

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The headline reading on the NBNZ business confidence survey retreated in March as we had expected, falling to a net balance of 42.5 (J.P. Morgan: 45) from a net balance of 50.1 in February, which had marked the highest reading in over a decade. The headline reading suggests that 42.5% of respondents surveyed this month expect economic conditions to improve over the next year, less than that recorded in the last survey owing to recent global jitters, particularly those that developed, although have since calmed, in the Euro area.

Signs that the recovery underway in New Zealand shed some momentum early this year weighed on the all-important reading of firms’ own activity in March. The firms’ own activity outlook component fell from 41.9 in February to 38.6. At this level, though, economic growth should continue at a healthy clip in coming quarters (chart). Our forecast is for first quarter GDP growth to print at 0.8%q/q, the same rate as in the previous three months.

Sentiment deteriorated in most components of the survey, although the investment outlook improved. A net 9.3% (compared to 7.6% previously) of respondents expect investment to increase over the next year which will, of course, have positive implications for the labour market. On that note, fewer respondents, only a net 6.1%, expect that the unemployment rate will rise further, supporting our view that the unemployment rate already peaked at a nine-year high in the final three months of last year. Recent global jitters weighed on the outlook for exports, however, with only a net 24.9% of those surveyed expecting exports to pick up. Sentiment in the residential and commercial construction sectors also worsened, albeit mildly.

With respect to interest rates, the NBNZ reported that a net 64.5% of firms (down from 69.4%) expect that the RBNZ will hike the cash rate in the next year. Our forecast is for the first rate hike to be delivered in July, beyond the consensus forecast for a June move. Our feeling is that Governor Bollard wants hard evidence that the recovery is sustainable, so will sit on the policy sidelines until after the late-June release of the 1Q GDP report.

ENDS

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