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Business confidence freefall hits new record low

9 December 2005

Business confidence freefall hits new record low

Confidence hit a new low in a survey of over a thousand business respondents undertaken electronically by the Auckland Chamber of Commerce between Monday and Wednesday this week.

Key messages from the survey that asked businesses to look ahead at conditions for the next six months painted a joyless picture of confidence continuing in freefall, and challenging times ahead shaped by rising average costs and selling prices and declining profits.

Commenting, Chamber Chief Executive Michael Barnett notes that the fall in confidence began in the Chamber’s March survey and has progressively worsened to now be lower than at any time since the Labour-led Government first won office in 2000.

“The lack of a constructive response from Government is confusing the market. On the one hand Government has started to accelerate the upgrade of key infrastructure such as Auckland’s roading and take initiatives to lift productivity.

Countering these initiatives, however, is the impact on businesses of rising interest rates coupled with Government’s inability or lack of will to action a constructive alternative to the blunt instrument used by the Reserve Bank to threaten and intimidate business that it will control the housing market if inflation is not brought under control.

“The ballooning pessimism is clearly being fuelled by the Reserve Bank’s simplistic messages to drive up interest rates and the lack of response by Government to control its own spending or direct local government to keep rate rises and other costs within inflation.”

“We don’t see this kind of intimidation against business in the Australian approach to manage economic policy, yet they continue to maintain a business productivity level that is at least half a percent better a year than here. The result is that business is under pressure from all sides - from offshore through more efficient competitors enjoying the benefit of a more sympathetic business environment and foreign exchange pressure, and being battered into submission at home by our own regulatory agencies.”

“I simply repeat my message after the last survey three months ago. The big issue is that New Zealand – Government & business together - needs to respond aggressively to these worsening conditions with a long-term strategy that will re-position our economy

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internationally, and not just batten down the hatches because the conditions have got tough.”
“In plain language, we need an action based response, not more paralysis by analysis,” he said.

At the end of the day, the strong survival instinct of many businesses is the only reason that the New Zealand economy prevails. “The survey findings show that despite the 57% of businesses picking the business environment to get worse in the next six months, 36% still believe they can take advantage of this environment to improve their own performance and prospects.”
Main survey findings were:

On Confidence

- 57% of firms believe conditions for business will get worse over the next six months, compared with 55% in the previous September survey and just 8% in March 2002. Only 8% believe conditions will improve.

- 63% of firms believe conditions for their own individual business will stay the same or get worse over the next six months, compared to 36% who believe they will improve.
On Skills

- 42% of firms believe it will continue to be harder to employ the right people with the right skills. The sectors most affected include the trades, tourism & hospitality, manufacturing and professional services. Frustrating business at present is the compromise they are having to make when employing, including finding staff who are passionate about what they do and the concern that having to be in 10 places at once to compensate is, to quote one respondent, resulting in the desire to stay in business being hammered out of us.
On Interest Rates

- 85% of respondents now believe interest rates will rise, compared with 67% in the previous survey in September, and which for many is placing added pressure on a shrinking bottom line.
Other Issues

- Investment in buildings and machinery is continuing to decline;

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- The high dollar is becoming “too strong and too much to handle” for many exporters;

- Competition from China’s “rock bottom” labour costs is resulting in lost accounts and orders.

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