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Kiwi business confidence sinks to seven-year low

Kiwi business confidence sinks to seven-year low

Outcome suggests economy may not pick up much after slowing in the first quarter

New Zealand business confidence fell to its lowest in seven years in the second quarter, as rising costs spooked retail and construction firms, a private think tank has revealed.

The outcome, which adds to a recent slew of weak data, suggests the economy may not pick up much after slowing in the first quarter.

That could put pressure on the central bank to maintain interest rates at record low levels for some time.

A net 20 per cent of firms surveyed expected general business conditions to deteriorate compared with 11 per cent in the previous quarter, the New Zealand Institute of Economic Research's (NZIER) quarterly survey of business opinion (QSBO) showed.

The New Zealand dollar slipped a little from $0.6712 to $0.6706 following the release.

"This softening does suggest a moderation in GDP (gross domestic product) growth over the coming year," NZIER principal economist Christina Leung said, adding that rising costs of materials and wages were dampening firms' profit expectations.

Construction and retail were particularly hard hit with business confidence in retail dropping to its lowest in nine years, likely in part due to an increase in the minimum wage, NZIER added.

The survey's measure of capacity utilisation was 92.8 per cent, compared with the previous quarter's 93.5 per cent.

New Zealand's growth slowed to 0.5 per cent in the first three months of this year and consumer confidence dipped in the second quarter, suggesting the economy may be in for a soft patch.

The gloomy outlook by businesses would be closely watched by the RBNZ, but the bank would likely stand back to see how it filtered through to economic growth or inflation before altering its monetary policy, according to economists.

"This may cause some concern to the Reserve Bank in terms of future underlying inflation pressures, but it would take some time to assess," said Jane Turner, senior economist at ASB Bank.

The RBNZ kept interest rates steady last week and warned of rising risks to the outlook, signalling its resolve to keep record-low rates for some time.

(Additional reporting by Leika Kihara; Editing by Richard Chang and Tom Brown)


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