Cost of confidence slump

Business confidence has fallen to the lowest level in more than eight years:

The ANZ business outlook survey found a net 39 per cent are pessimistic about the economy over the coming year, a 29 point fall since October.

The latest survey is the first of its kind to be taken since the new Labour-led Government was formed.

Headline business confidence was negative across all the five sub-sectors covered, with agriculture the most pessimistic.

All the anti-farmer rhetoric in the lead up to the election gives those in agriculture and related industries good cause for concern and dry weather throughout much of the country isn’t helping.

Dairy, sheep meat and beef prices are all reasonably good but there is a lot of uncertainty about what the government might or might not do.

“Uncertainty around changing Government policy, a softer housing market, and difficulty getting credit are likely culprits,” ANZ chief economist Sharon Zollner said.

“The economy is at a delicate juncture as migration, construction and housing run out of steam as growth drivers. Commodity prices are strong and a fiscal boost will come through in time, but at such times of transition, sentiment is more vulnerable.”

Zollner said while it was the first survey of its type that ANZ had conducted since Jacinda Ardern became prime minister, “it would be too simplistic to ascribe the full move to the change of government”.

“There is a lot else going on. The softening in house price inflation is one obvious factor that shouldn’t be overlooked (particularly its importance for the retail sector), as is the reported difficulty of getting credit.”

So-called “own activity expectations” – what individual owners expect of their businesses remained positive overall, but fell sharply, down 15 points to a net 7 per cent positive. This was also the weakest measure since 2009.

The survey found a net 41 per cent of businesses expected it will become more difficult to obtain credit, the highest since the question was introduced to the survey in 2009.

ASB senior economist Jane Turner said the fall in headline confidence was hardly a surprised, and was typically biased when Labour has been in Government.

“However, the fall in own activity is concerning and if sustained will suggest material downside risk to the economic outlook,” Turner said. . . 

Just as one political poll shouldn’t be taken too seriously, one business survey shouldn’t be cause for panic.

But lack of confidence can become self-fulfilling and the cost of that is an economic slow down.

Businesses need confidence to invest, to take the risk to grow, to employ more staff. Without confidence they hold back on new or bigger investments, they’re much less likely to take risks, less likely to invest more, and less likely to take on more staff.

Governing parties are back pedalling on several of their pre-election policies but until it’s clear what they’re saying and whether that’s what they’ll do, businesses are going to be wary.

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