Economist issues warning
Business confidence continues to slide, with more companies planning to cut back on investment in the coming year.
The ANZ business outlook survey for August showed headline business confidence – which has become a highly contentious measure – dropped a further 5 points, with a net 50 per cent now expecting conditions to deteriorate.
Own activity – a measure of what business figures expect to see from their own companies – was flat. The measure tends to be a better indication of economic growth.
But at a net 4 per cent expecting conditions to improve in the coming year, the measure suggests the economy growing at well below average.
ANZ chief economist Sharon Zollner warned ‘‘the threat to near-term activity is real’’.
A net 5 per cent of companies said they expected to decrease investment in the coming year, according to the survey. ANZ said it was rare for the reading to be negative.
‘‘If this weakness is sustained, it will not bode well for [economic] growth heading into the end of the year,’’ Zollner said. There was ‘‘downside risk’’ that the economy would grow at an annual rate of 3 per cent over the second half of 2018, she said.
Zollner said that as scrutiny on business confidence surveys increased, the bank re-examined links between the readings in the survey and what happened in the real economy. This led the bank to place greater emphasis on investment and employment intentions.
‘‘When you ask people what they expect, they tend to take a bit of a punt, and various biases can enter the answers,’’ Zollner said. ‘‘But when you ask people what they’re going to do, they generally follow through.’’
ANZ published a survey showing historic investment intentions in its survey tended to show a strong link with economic growth in the following months, which on current trends point to a continuing slowdown.
Zollner admitted that in 2015, when dairy prices plunged, investment intentions suggested the economy would stall, but a booming housing market at the time kept growth robust.
‘‘When firms tell you they’re going to stop hiring and investment, you generally get a hole in employment and GDP [economic] growth.’’
Westpac senior economist Michael Gordon said economic growth had slowed since late 2016, but ‘‘the weight of evidence points to a shift to more modest growth rather than a slump’’.
Westpac was expecting that economic growth would increase in 2019, boosted by stronger government spending.
‘‘We suspect that a large part of the fall in business confidence reflects firms’ discomfort with the new Government’s policies, especially the planned changes to labour laws,’’ Gordon said.
‘‘Prime Minister [Jacinda] Ardern’s speech this week was certainly aimed at alleviating these concerns, for instance by committing to no more than one or two ‘fair pay’ agreements during the Government’s current term. We’ll see whether this reassurance has had any effect in next month’s survey.’’
The survey of 369 businesses would have been largely completed before Tuesday’s speech by Ardern, which aimed to confront the issue of low confidence among New Zealand businesses.
‘‘If this weakness is sustained, it will not bode well for [economic] growth heading into the end of the year.’’ ANZ chief economist Sharon Zollner