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“Aberration or start of a business down turn?”

6 April 2005

Auckland Business Confidence Nosedives –

“Aberration or start of a business down turn?”

Business confidence in the Auckland region has fallen dramatically in just three months with pessimism about the economic outlook at its highest level than at any time in at least the past two years.

A quarterly survey of Auckland Chamber of Commerce members late last month showed pessimists far out-number optimists by more than 5-to-1, reversing the findings of the last survey in December in which optimists were in the majority.

“The survey findings clearly show Auckland’s infrastructure difficulties are starting to drag down business-led growth and strongly reinforce the need for a regional economic development agency to start addressing the core solutions that are needed to fix these constraints,” said Auckland Chamber chief executive Michael Barnett.

In the latest survey, just 8% of respondents predicted that the general business situation will improve over the next six months, while 46% expect it to deteriorate and 46% expect it to stay the same.

Back in December, 22% of respondents predicted the general business situation to improve and 19% said it would deteriorate, with 57% saying it would stay the same.

Reinforcing the dramatic reversal of business confidence, just 38% of respondents predicted that their own business situation would improve over the next 6 months, compared to 50% making the same prediction last December.

Last December, just 11% of respondents started the New Year predicting a down turn in their own businesses. In the March survey the number of pessimists has more than doubled with 23% of those surveyed now predicting tougher times in the own businesses during the next six months.

Reinforcing the dramatic reversal of confidence is that last December the 50% of businesses predicting that their own prospects would improve over the next six months was the highest level of optimism of the four surveys conducted in 2004. In contrast, the 23% now picking a decline is the highest level of pessimism for at least three years. Throughout 2003-04 respondents predicting their own situation to worsen in the following six months varied between 11% and 16% and in 2002 the level of pessimism among individual businesses never reached double figures.

Other findings reinforced the main results: 54% of respondents reported that finding skilled staff is getting harder, a record high for the survey; 81% expect interest rates to rise over the next 12 months, against 2% of say they will fall;

Commenting, Chamber chief executive Michael Barnett said the findings reinforce the case for Auckland to establish an economic development agency from where solutions to long-known regional economic constraints can be driven.

He noted that the chamber findings were consistent with an Auckland Regional Council – National Bank economic report released yesterday predicting that Auckland’s economic growth is expected to halve next year to less than 2%.

The report highlighted Auckland’s inadequate roading network as one piece of infrastructure dragging on growth. Skill shortages is another

“The region’s core infrastructure problems are not new.” For nearly three years, the quarterly chamber survey has highlighted a growing skill shortage. Chamber surveys have also consistently put transport as the region’s number one issue of concerns, noted Mr Barnett.

“The region can keep reporting what its infrastructure problems are, and lots of money can be spent supporting “winning” companies. At the end of the day, the issue that needs fixing is to offer business the best possible environment in which to operate.”

The economic development agency being established at the Regional Council would provide a single facilitation agency to address core infrastructure issues – roading, education and skills, broadband technology – and to promote the region as a destination for investment and businesses to locate.

“The agency will set a platform that will help fix these constraints.”

Meanwhile Mr Barnett noted that the chamber quarterly survey is a here-and-now assessment of businesses operating at the coal face. “These latest results clearly send a strong warning shot across the bow of government and reinforce how quickly the mood of business can change.

The next survey in June will determine whether the March survey reversal is an aberration or the start of a business cycle down turn, suggested Mr Barnett.


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