Business confidence turns pessimistic in October over political uncertainty

Political uncertainty saw business confidence sour in October as the interregnum before a government coalition was formed stoked negativity across all sectors

Business confidence fell to a net 10 percent of firms negative about the year ahead, from a net zero reading with as many pessimists as optimists in September, according to the ANZ Business Outlook. In seasonally adjusted terms, business confidence fell to a net 8 percent negative from a net 16 percent positive.

"Most survey responses were received in the first half of the month, before the final government make-up was decided," said ANZ Bank New Zealand chief economist Cameron Bagrie. "So this month's survey primarily covers the uncertainty around the outcome and not the outcome itself. The latter will be next month's story."

While other indicators held up better, a tempered mood became more apparent, Bagrie said. Regarding activity outlook, a net 22 percent of firms anticipate better times ahead for their own business, down from 30 percent in September. Adjusted for seasonality, activity expectations fell to net 24 percent from net 37 percent, below the average of net 28 percent.

"With the economy now deep into the business cycle, it's harder to make strong gains, particularly with an engineered slowdown occurring in the housing market and resource constraints apparent," Bagrie said. "Transitions can be wobbly and create uncertainty, which is being exacerbated by changes in government policy and economic direction. What the 'social justice' version of capitalism or 'wellbeing' means for longer-term growth prospects remains an important talking point, and not only in New Zealand."

Profit expectations also fell in October, with a net 12 percent anticipating bigger profits in the year to come versus 18 percent in September. A net 20 percent see exports increasing over the coming year, down from 25 percent in the prior month, and Bagrie said it was too soon to see any benefits of the lower New Zealand dollar.

Residential construction investment intentions rose to net 31 percent positive, from net 18 percent in September, while commercial construction intentions rose to net 43 percent positive from net 18 percent.

The survey shows that pricing intentions were unchanged at net 20 percent planning increases over the year, while inflation expectations fell to 1.9 percent from 2 percent in September. Firms' investment plans dipped to net 12 percent from net 13 percent in September, and new hiring intentions eased to net 14 percent from net 15 percent.

(BusinessDesk)