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New Zealand Business Confidence Falls as Demand Slows

New Zealand’s business confidence fell in the third quarter to the lowest level since mid-2009, weakening the case for further interest-rate increases.

A net 6 percent of companies surveyed expect the economy will improve over the next six months, down from 18 percent in the second quarter, the New Zealand Institute of Economic Research said today in Wellington. The net figure, which isn’t adjusted for seasonal patterns, is calculated by subtracting the proportion of pessimists from optimists.

Declining confidence adds to signs that central bank Governor Alan Bollard will keep interest rates unchanged this year as economic growth slows, even before the impact of the nation’s worst earthquake in 80 years. The economy expanded less than analysts expected in the three months through June and the economist who oversees the survey suggested it may signal a contraction last quarter.

“While the recovery continues, it is doing so at a sharply slower pace than firms expected three months ago,” said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. “There appears little urgency for Governor Bollard to hike the cash rate anytime soon.”

New Zealand’s dollar fell after the report, declining to 73.87 U.S. cents at 11:15 a.m. in Wellington from 74.18 cents immediately before the release.

Thirteen of 14 economists surveyed by Bloomberg News last week forecast Bollard will keep interest rates at 3 percent until at least January. One expects a December increase. Kevans last week revised her prediction to March from December.

Canterbury Earthquake

The survey results don’t show any discernible impact from the magnitude 7 earthquake that struck Canterbury on Sept. 4, the institute said. There was a 20 percent decline in responses from the region.

Businesses reported that the first-half recovery in sales and profits reversed in the third quarter, adding to signs the economy may have contracted, Shamubeel Eaqub, principal economist at the institute, told reporters today.

“The risk of a double-dip recession has risen quite a bit,” he said. “The economy is in a very weak place.”

A net 16 percent of companies said trading deteriorated in the three months ended Sept. 30, the institute said, citing unadjusted figures. A net 30 percent said profits fell.

Expectations for the fourth quarter are weak, according to today’s survey. Fewer firms expect trading will increase in the next three months and a net 14 percent expect profits will fall.

“Demand remains a big problem in the economy,” said Eaqub. “Renewed economic weakness, distant inflationary pressures and a fragile global setting will see the Reserve Bank hold the cash rate steady until early 2011.”

Investment, Hiring

Investment intentions declined while employment intentions improved. A net 5 percent expect to hire workers in the next three months, up from 1 percent in the second-quarter survey.

Economists monitor the institute’s report to gauge whether inflation pressures will emerge. Bollard said last month he expected inflation to stay within the 1 percent to 3 percent range that he is required to target in the medium term because of weak domestic demand.

A temporary jump in inflation is expected in the fourth quarter after the government raised the rate of sales tax to 15 percent from 12.5 percent on Oct. 1.

A net 30 percent of firms plan to raise prices over the next three months, today’s report showed. Fifteen percent were able to raise prices in the third quarter, the institute said.

“We haven’t seen much inflation,” said Eaqub. “Actual pricing is going sideways. There is very little ability to pass on price increases.”

A net 4 percent of companies said it is harder to find skilled workers, up from 2 percent in the previous survey.

Capacity utilization, a measure of factory usage, fell to 90.39 percent in the third quarter from 90.76 percent in the previous three months.

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