New Zealand business confidence plunged to a seven-month low in June, as costs, credit and capacity weigh on firms. Retail is the most gloomy sector.

A net 39 percent of 341 firms surveyed in the ANZ business outlook survey expect general business conditions to deteriorate in the coming year, 12 points lower than May’s result and the lowest that measure has been since November 2017.

The survey has become a political football since the election as headline confidence has continued to weaken. Finance Minister Grant Robertson has said he thinks it’s an issue around perception and the survey is not historically correlated with GDP growth.

Companies are also typically more downbeat about the broader economy under a Labour administration, and ANZ stressed today that business sentiment “is only one input into the decision-making that drives the economy” and “firms’ expectations of their own activity are a better gauge of future GDP growth”.

However, that latter measure was also today down, though it remained positive. A net 9 percent of firms predicted increased activity in their own business, down from 14 percent last month. Manufacturers were the most optimistic at net 16 percent positive, while retailers were most gloomy at net 6 percent.

“Our composite GDP growth indicator combines business expectations and intentions with consumer confidence. This remains expansionary (with robust consumer confidence providing support), but suggests the economy may continue gently losing steam over coming months, despite the support coming from fiscal stimulus and high commodity prices,” ANZ says.

“Going forward, we expect tailwinds in the form of fiscal stimulus and strong terms of trade will see the economy continue to grow at about par. However, cost, credit and capacity headwinds have strengthened, and firms have noticed.”

“We need a solid-looking economy to deliver on the social policy agenda. That solidity is looking shaky.”

– Cameron Bagrie

Commenting on the ANZ survey, economist Cameron Bagrie says although some of the slide in confidence will be seasonally motivated (confidence tends to weaken into winter), the trend “is starting to look worrying”.

In particular, Bagrie, who heads Bagrie Economics, is concerned that firms’ own activity expectations – traditionally a politically-agnostic indicator – continues to weaken.

“The economy is now clearly tracking around 2% and not 3%. We already saw that in the Q1 GDP figures. Today’s survey cements more of the same. In fact growth is looking lower.

“The difference between 3% and 2% growth is a $800m potential loss of tax revenue,” Bagrie says. Treasury is expecting growth to rebound to 3-3.5% – that’s a country mile off. We need a solid-looking economy to deliver on the social policy agenda. That solidity is looking shaky.”

Bagrie says the continued fall in activity expectations out of the service sector is perplexing. “This sector is not being impacted by government policy changes, so something more broad is going on.”

The ANZ survey shows hiring intentions dropped, with a net 1 percent of firms planning to take on new staff, down from net 7 percent in May, and negative hiring intentions in construction and agriculture. Profit expectations dropped 4 points to net 13 percent negative, with retail the weakest sector. A net 4 percent of firms expect to increase their investment, up 1 point “but still low”, ANZ says.

A net 27 percent of firms intend to raise prices, up from 26 percent in May, while inflation expectations rose to 2.3 percent from 2.12 percent.

ANZ said the biggest problem for survey respondents was a lack of skilled employment, with 28 percent considering it their most important issue. Staff was a particular issue amongst construction, manufacturing and services firms. Some 17 percent of firms said regulation was their biggest issue, the highest reading for this problem since this data started being collected in March 2012.

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