Business gloomy in survey but news not all grim for first quarter

liam.dann@ nzherald.co. nz Business is feeling gloomy.

The New Zealand Institute of Economic Research’s (NZIER) quarterly survey of business opinion (QSBO) showed confidence hasn’t recovered from the post-election slump. But while the new Government didn’t get the bounce back in sentiment it might have hoped for, the news wasn’t all grim.

Across the first three months of this year firms were slightly more positive in their outlook for the broader economy — although they were marginally more pessimistic about the outlook for their own activity.

Should the Government be worried?

While there is no doubt some lingering dissatisfaction with the election result and policies of the new government, it’s also not hard to see other reasons for business concern.

The past three months have seen a steady flow of worrying global news — talk of trade wars, market crashes and a general sense that we must be due for a downturn simply because we have had such a long run of economic growth.

Even more pressing is the profitability problem the firms report.

A key concern raised by business, in this survey and others, is that profit margins are thin.

Core costs like rent and transport keep rising but they aren’t able to pass those on in pricing.

Retailers in particular are caught in a squeeze between structural deflation pressures (disruptive technology and globalisation) and the return of cyclical inflation as the economy bumps up against speed limits.

So labour shortages are acute and causing stress but firms don’t feel like they have room to move on wages. That’s dampening hiring expectations.

On the upside the survey did record a rebound in investment intentions for plant and machinery.

That’s good news in the sense that capital investment drives productivity gains and may offer a way through the impasse on labour — and ultimately wages.

For those worried about interest rates the news from the latest QSBO wasn’t all bad either.