Official interest rate tipped to dip to 1pc
Business confidence continues to slide, with New Zealand companies the most downbeat in a decade, since the height of the global financial crisis.
The Quarterly Survey of Business Opinion (QSBO) for the June quarter, released yesterday, showed a fall in general confidence.
More importantly, most businesses surveyed said they expect their own activity to contract in the coming quarter.
A net 4 per cent expected to see a drop in demand in the coming months, the weakest score in that question since 2009. More businesses also reported that demand had weakened in the June quarter, while hiring expectations weakened.
While the survey was expected to be weak, the increasing share of businesses pointing to a contraction was weaker than generally expected.
ASB responded to the news by predicting that it expected the Reserve Bank to cut interest rates twice, both at its next meeting in August and again in November, to a new record low of 1 per cent. Previously ASB predicted only one further cut.
‘‘There is evidence to suggest that falling profit margins are now impacting employment demand, and the risk is that a weaker labour market may result in the economic slowdown becoming more entrenched,’’ ASB senior economist Jane Turner said.
Christina Leung, principal economist at the Institute of Economic Research (NZIER), which undertakes the QSBO, said the measures suggest gross domestic product (GDP) would fall below 2 per cent in the second half of 2019, below what economists generally had been expecting.
Manufacturers were the most pessimistic in the survey, with a net 23 per cent reporting a fall in output.
Measures across the survey were weak, although architects – an indicator of future construction – reported a bump in demand which NZIER said ‘‘points to a rebound in the pipeline of construction over the coming year across residential, commercial and Government work’’.
NZIER added that the ‘‘longer term outlook for commercial construction is more uncertain’’.
Economists generally have forecast that the economy had slowed up to the end of June, but that a pick up in Government spending would see activity pick up in the second half of
the year.
‘‘It’s fair to say that this read is a dose of cold water,’’ ANZ economist Miles Workman said, predicting that the Reserve Bank will pare back its forecasts of a strong economic bounce back over the rest of 2019.
‘‘We are forecasting economic momentum to gradually lift from the second half of the year, but with headwinds persisting, we expect this to be relatively hard yards.’’
National finance spokesman Paul Goldsmith linked the fall in business confidence to Government policy.
‘‘Despite a historically high terms of trade and rising exports, Finance Minister Grant Robertson has repeatedly tried to blame the domestic slowdown on global conditions,’’ Goldsmith said. ‘‘The Minister of Finance needs to take responsibility for the role the Government’s policies have played in slowing New Zealand down, especially when Westpac stated last week that New Zealand’s economic slowdown can be ‘put down largely to domestic factors’.’’
The survey follows the ANZ business outlook survey for May, which showed a slight fall in general business outlook and own activity.
The Reserve Bank reacted to weak confidence and a deteriorating global outlook by cutting the official cash rate to a record low of 1.5 per cent in May, with a further cut expected in August.
‘‘It’s fair to say that this read is a dose of cold water.’’ Miles Workman, ANZ economist