New Zealand’s NZIER Q3 survey shows softness in business conditions on deep political uncertainties

According to New Zealand’s NZIER quarterly survey of business firms, business confidence continued to fall during the third quarter of this year and firms’ domestic trading conditions continued to soften. Also, political uncertainty and margin-squeeze are weighing and capacity pressures eased slightly, which is consistent with growth running below trend of late, although finding skilled staff remains a clear challenge.

Headline business confidence fell from 17 to 7 – that is consistent with the signal from our own Business Outlook survey. Political uncertainty is no doubt weighing. But sentiment remained above long-run averages and interestingly the drop wasn't as sharp as in other pre-election periods (normally 19 point drop vs 10 points this time). Most regions saw a drop in confidence, but Northland experienced a lift, perhaps due to regional election campaign promises.

Firms’ experienced domestic trading conditions fell, from a net 17 percent to 13 percent. However, businesses remain optimistic about the outlook (with expectations rising from +24 to +27).

Overall, indicators are consistent with GDP growth around 3 percent, which is really about expectations pulling back towards reality – indicators had previously been suggestive of growth up towards 4 percent, which looked a stretched given late-cycle headwinds.

"The weaker sentiment from the construction and services sector is also consistent with our view that the economy is in a transition phase as some of its previous growth drivers (housing, construction, tourism, migration) peak, and we await others to step in and fill the void," ANZ Research commented in its latest report.

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