Photographer: Brendon O'Hagan/Bloomberg
New Zealand Firms Haven't Been This Glum Since Financial CrisisBy
Business confidence slumps after new government takes office
Kiwi dollar declines on risk of weaker economic growth
New Zealand business confidence has tumbled to its weakest since the global financial crisis amid uncertainty over the policies of a new center-left government.
A net 39.3 percent of firms expect the economy to deteriorate in the next 12 months, ANZ Bank New Zealand said Thursday in its business outlook report. That’s down from 10.1 percent in October and the lowest reading since March 2009. A separate gauge of expectations for their own activity also fell to an eight-year low.
“We haven’t seen a reading like this since we were clawing our way out of the financial crisis in 2009,” said Nick Tuffley, chief economist at ASB Bank in Auckland. “The key question is whether this is just a knee-jerk reaction to the new government or is there going to be a longer lasting period of nervousness among businesses.”
Business confidence turned negative last month as companies waited on the outcome of talks to form a new government, and confirmation of a Labour-led coalition in late October hasn’t provided any relief. Political uncertainty and a slowing housing market are hurting investment and consumption, threatening to curb economic growth.
The New Zealand dollar dropped more than a third of a U.S. cent on the confidence data. It traded at 68.44 U.S. cents at 1:58 p.m. in Wellington, down from 68.84 cents immediately before the report.
“There is a non-trivial risk, given an economy at a delicate juncture, that the fall in activity expectations could prove to be self-fulfilling,” said Sharon Zollner, chief economist at ANZ Bank in Auckland. A gauge of both business and consumer confidence suggests growth of about 2 percent over the next year, she said.
Investors have in recent weeks reduced bets on a rate increase from the Reserve Bank in the coming year. They currently price a 75 percent chance that the central bank will raise its key rate from a record-low 1.75 percent by November next year, down from 99 percent three weeks ago, according to swaps data compiled by Bloomberg.
Today’s report “doesn’t necessarily mean you would be cutting rates or delaying rate increases,” Tuffley said. “Is there a bit more risk that the Reserve Bank turns a bit softer on the outlook? That risk would become a bit higher if we see several months of business confidence not recovering.”
— With assistance by Garfield Clinton Reynolds