Business confidence picks up
Business confidence has bounced back with a net 12 per cent of New Zealand companies expecting an improvement in general economic conditions over the coming months.
The seasonally adjusted figure for the June quarter appears in the latest quarterly survey of business opinion by the New Zealand Institute of Economic Research (NZIER).
The result is up from the net one per cent that held the same view in the previous quarterly survey, which was undertaken shortly after the onset of the US-Israel-Iran war that increased fuel prices.
Meanwhile, demand in companies’ own business was broadly flat, with a net one per cent reporting increased activity in the June quarter.
Christina Leung, NZIER deputy chief executive, says businesses were surveyed between June 10 and July 7, which coincided with a period when global fuel prices began to fall as the US and Iran reached a 60-day memorandum of understanding guaranteeing ships passage through the Strait of Hormuz.
“This recent easing of the fuel crisis appeared to have supported an improvement in confidence in the June quarter,” she adds.
“However, geopolitical conditions in the Middle East remain highly volatile and uncertain, with tensions between the US and Iran re-escalating and fuel prices resurging in more recent weeks.”
Leung, pictured, notes this ongoing uncertainty continues to drive caution among firms when it comes to hiring and investment.
A net 10 per cent of companies reduced staff numbers in the June quarter and a net one per cent plan to reduce staff counts in the next quarter.
A net three per cent of firms plan to cut investment in buildings, plant and machinery over the coming year.
“The renewed conflict between the US and Iran and heightened uncertainty over the upcoming general election in November will likely further weigh on firms’ hiring and investment intentions over the coming months,” says Leung.
NZIER’s survey shows sentiment remained mixed across the sectors in the June quarter, with the building industry the most pessimistic.
A net six percent of building sector firms surveyed expect a worsening in general economic conditions over the coming months.
In contrast, retailers remained optimistic about the outlook and demand over the coming months, as new orders and sales continued to improve in the June quarter.
The proportion of retailers who passed on higher costs by raising prices increased in the June quarter, but they reported weak profitability as costs surged.
Overall, the proportion of firms reporting higher costs rose from a net 37 per cent to more than half in the June quarter, while those able to pass on higher costs by raising prices climbed to a net 41 per cent.
“Cost pressures were particularly acute in the building and retail sectors, but building sector firms had cut prices over the quarter, given continued weak construction demand,” adds Leung.
“Overall, these results suggest a heightened risk of high inflation persisting in the New Zealand economy.”
