Business does not expect the best

Business confidence has soured in the wake of the new Labour-led Government, with employers cutting back plans to invest or hire new staff.

The quarterly survey of business opinion (QSBO), the leading survey of its type, showed a net 11 per cent of businesses expect the New Zealand economy to deteriorate over the next six months.

While those covered by the survey were somewhat more upbeat about how their own business would perform over the period, the net 11 per cent expecting an increase in their own activity was the lowest in the QSBO in close to five years.

The net figures represent the difference between the number of businesses which expect conditions to improve in the coming year and those which expect it to deteriorate. A negative score means pessimists outnumber optimists.

The survey, undertaken by the New Zealand Institute of Economic Research (NZIER), follows a similar drop in the monthly ANZ business outlook survey, which fell sharply around the time of the election.

How lower business confidence will impact the economy is far from certain.

NZIER principal economist Christina Leung said previous surveys showed confidence tended to drop when a Labour Government was elected, and rose when a National Government was elected ‘‘but the effect on actual activity has been muted’’.

‘‘When Labour takes office, confidence tends to decline,’’ Leung said, adding however that ‘‘looking at actual activity itself...it’s actually fairly similar when it comes to which party takes office’’ in the year after the election.

Kiwibank senior economist Jeremy Couchman said the drop in confidence ‘‘looks more like a change in mood rather than what business are actually experiencing’’ with own activity remaining strongly above general sentiment.

‘‘This suggests that the fall in confidence may reverse moving through 2018 as ongoing expanding activity puts businesses’ minds at ease.’’

However, Leung pointed to a concerning drop in profitability expectations, with the number of businesses reporting a fall in profits at the end of 2017 also dropping.

Fewer businesses expect to invest more in plant and machinery, or new buildings, in the coming year.

Confidence in both urban centres and dairy intensive regions were hit particularly hard.

In Wellington, which by and large appears to benefit in terms of employment when Labour is in Government, a net 33 per cent of businesses expect conditions to deteriorate.