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Quarterly Survey of Business Opinion (QSBO)

Quarterly Survey of Business Opinion (QSBO)


Data Flash (New Zealand)
Quarterly Survey of Business Opinion (QSBO)

Key Points The survey was conducted during the second half of September.

The level of trading conditions surveyed in Q3 is consistent with our estimate of a rebound in quarterly GDP growth of around 0.7%.

Capacity utilisation in the manufacturing and building sectors moderated from 89.9% in late June to 89.0% in September.

Looking ahead, business confidence (regarding the outlook for the next six months) has continued to fall. A net 40% (s.a.) of respondents are pessimistic, up from a net 30% three months ago.

The negative sentiment is being driven by weak trading conditions and mounting cost pressure, which causes a weak profitability outlook. The indicator of 'trading activity expected by businesses over the next three months' suggests an expectation of zero growth, while a net 52% of businesses expect their costs to rise and a net 23% expect profitability to fall.

Consistent with the subdued activity outlook, investment intentions have remained weak.

While employment intentions have improved slightly, the skill shortage indicator has risen again.

Of concern to the RBNZ will be the continued increase in pricing intentions, which are now significantly above the mid-90s peak that occurred on the back of a strong growth period.

Commentary The latest survey results are consistent with those of the monthly NBNZ surveys. While the structural adjustment of the economy towards an export-dominated growth profile is underway, it is a slow process for the export dollar to trickle down to the major centres. Given pressure on household incomes from the weak exchange rate and higher taxes, as well as the overlay of the oil related terms of trade shock, domestic demand is likely to remain subdued for the remainder of this year. However, an early indication of a likely upturn in consumer demand was provided by the latest Colmar Brunton consumer confidence data, which recorded a sharp reduction in negative sentiment from -19% (net respondents) to -3%.

As a consequence of near-term economic weakness, monetary policy is expected to remain on hold until early 2001. However, the combination of a gradually strengthening growth performance and considerable exchange rate related price pressure is likely to convince the RBNZ in Q1 that more monetary policy pressure is needed to combat potential second-round inflation effects. With CPI inflation forecast to rise to 3.8% next year and to stay above 3% for all of 2001, we believe that there are considerable risks of flow-on effects into higher wage inflation - particularly considering the level of skill shortages.

Ulf Schoefisch, Chief Economist, New Zealand\

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