31 Mar 2016

Business confidence drops again

4:57 pm on 31 March 2016

Business confidence has continued to fall, particularly in the agricultural sector.

Farm dog on organic farm in the Manawatu.

A net 46 percent of firms in the agricultural sector expected conditions to worsen, according to the survey. Photo: RNZ / Alexander Robertson

ANZ Bank's business survey for March shows a net 3 percent of firms are upbeat about the prospects for the economy over the coming year, compared with a net 7 percent in the previous survey.

"Business confidence remains in the dog house," said ANZ chief economist Cameron Bagrie.

Optimism remains high in construction, which is no surprise given low interest rates and Auckland's housing shortage, while the service sector is also buoyant.

Sentiment dipped into the red for retailers and manufacturers.

But the mood is dark in agricultural circles, with a net 46 percent of firms expecting conditions to worsen, reflecting the effect of weaker dairy prices.

That mirrored a Rabobank report this morning which found rural confidence had hit its second lowest level ever in the past 10 years, with 53 percent of farmers pessimistic about the coming year.

Firms own prospects brighter

While firms in the ANZ survey were more nervous about the economy in general, optimism about their own prospects had picked up, from a net 26 percent to 29 percent.

"Firms' own activity expectations, in conjunction with expectations for employment, investment and profits, are a key litmus test for whether firms are getting on with it; they appear to be. Solid growth still beckons," Mr Bagrie said.

Inflation pressures also remained subdued.

ANZ's composite growth indicator, which combines its business and consumer confidence reports, indicates the economy will expand between 2.5 percent and 3.5 percent.

Yesterday, Treasury secretary Gabriel Makhlouf said he expected his department would upgrade its economic forecasts when the budget rolled around in late May.

Treasury forecasts growth averaging around 2.7 percent a year over the next five years.

While the uncertain global outlook remains a concern, Mr Makhlouf said the domestic economy was robust, buoyed by record visitor and migrant arrivals and low interest rates.

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