NZ business confidence fell again in March, reversing most of the improvement seen towards end of last year

New Zealand’s business confidence fell again in March, reversing most of the improvement that was seen towards the end of last year. Sentiment about the general economy fell to a net -38 percent, while firms’ views of their own activity fell to +6 percent.

Confidence was markedly weaker in the construction sector, though more so in the general outlook than in their own activity. One factor may have been the final report of the Tax Working Group, which among other things recommended introducing a capital gains tax – excluding the family home, but covering investment properties and business assets. Such a tax would weigh on property prices, which in turn would discourage new building.

The pricing gauges in the survey were mixed. Inflation expectations were little changed in March, and have eased back in recent months as fuel prices fell. Pricing intentions rose slightly but remained within their recent ranges.

ANZ has also added a question on costs to the survey, mirroring the Quarterly Survey of Business Opinion which is due next Tuesday. A net 55 percent of firms reported rising costs, with concerns most acute in agriculture and construction.

The ANZ business confidence survey has greatly overstated the extent of the slowdown in growth over the last year or so. Nevertheless, there is a risk of this pessimism becoming self-fulfilling, which would weigh on business investment and domestic demand. That risk was certainly on the RBNZ’s radar in yesterday’s OCR review statement; the key question will be whether it shows up in the hard activity data.