New Zealand business sentiment turned negative and sunk to a two-year low in the fourth quarter due to pessimism towards the new centre-left government, a private think tank said on Tuesday.
A net 12 per cent of firms surveyed expected general business conditions to deteriorate compared with five per cent who had forecast an improvement the previous quarter, according to the New Zealand Institute of Economic Research (NZIER).
The quarterly survey of business opinion (QSBO) posted the most downbeat result since September 2015, which NZIER said was largely driven by firms' negativity towards the Labour-led coalition government taking the helm in October and ending almost a decade of centre-right National Party rule.
"Businesses may be worried about the outlook for the New Zealand economy under the new Labour-led government, but for now that is not reflected in demand in their own businesses," said Christina Leung, principal economist at NZIER.
She said that historically business confidence dropped when Labour took office, given they were perceived as less "pro-business" than the National Party.
Labour swept to power under charismatic 37-year-old leader Jacinda Ardern, who promised to reduce poverty and inequality by curbing speculation in the housing market and placing restrictions on foreign investment and immigration.
Leung said the politically fuelled drop in sentiment had traditionally not had much impact on businesses' own operations.
"It's more a sentiment story," she said, adding that meant the Reserve Bank of New Zealand (RBNZ) was unlikely to push back rate hikes due to waning business confidence.
"Overall we don't expect this will change the RBNZ’s thinking about what's going on in the NZ economy, activity indicators are holding up," she said.
The central bank has signalled it will keep rates on hold at a record low of 1.75 per cent, possibly until 2020, while inflation stabilises, though the NZIER forecast a rate hike as soon as November 2018.
A net 31 per cent of businesses said they expected to lift prices in the coming months, a three-year high.
Leung said a severe skilled labour shortage, particularly in the construction sector, would also eventually filter through to a pick up in wage growth.
"We're not seeing the wage growth yet, but do expect that will pick up over the next few years," she said.
The survey's measure of capacity utilisation was 92.8 per cent, from the previous quarter's 91.3 per cent.
The New Zealand dollar edged down to $0.7299 after the release from around $0.7306.
Despite such sentiment however, New Zealand employee confidence edged up to its highest since before the 2008 global financial crisis in the fourth quarter, a survey also showed on Tuesday.
The Westpac-McDermott Miller employee confidence index inched up to 113.9 in the three months to the end of December, from 113.8 in the previous quarter.
Optimism towards strong jobs growth was still warring with low wage inflation, however.
"New Zealand workers are reporting that jobs availability is the best it's been in nearly a decade...," said Satish Ranchod, senior economist at Westpac, in a research note accompanying the release.
"Despite this improved jobs outlook, most households remain pessimistic about their chances of getting a pay rise in 2018."
A reading above 100 indicates more optimists than pessimists.
(Reporting by Charlotte Greenfield; Editing by Alison Williams)