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Confidence weaker with construction sector in freefall

By Rebecca Howard

July 31 (BusinessDesk) - Business confidence continued to weaken in July with sentiment in the construction sector particularly dour.

A net 44.3 percent of the 363 respondents to the ANZ Business Outlook expect general business conditions will deteriorate during the coming year, compared with 38.1 percent in June. A net 56.5 percent of construction firms expect a deterioration.

Optimism about their own activity dimmed, with a net 5 percent anticipating an improvement for their own businesses, compared to 8 percent a month earlier. It was the lowest reading since August 2018. Within the construction sector, a net 33.3 percent are expecting things to get worse for their own businesses.

The New Zealand dollar fell to a three-week low and recently traded at 65.95 US cents versus 66.08 just prior to the release.

“The outlook for the economy is deteriorating. Despite generally good commodity prices and interest rates at record lows, the headwinds of a global slowdown and credit and cost constraints appear to be winning out,” said ANZ economist, Miles Workman.

"The main theme this month was a sharp deterioration in sentiment in the construction sector across a wide range of indicators,” said Workman.

On a net basis, 5.5 percent of firms expect to shed staff versus none in the prior survey. That number jumps within the construction sector.

“Construction indicators look a bit worse for wear, including net 33 percent of firms in the construction sector are intending to cut jobs. The construction sector currently employs 240,000 people, some 9 percent of total employment, making it a meaningful driver of broader employment trends," he said.

A net 0.3 percent of surveyed firms expect to pull back investment versus 2.5 percent that had expected to lift investment.

Within the construction sector, commercial construction intentions plunged 25 points to a net 20 percent expecting a contraction in building intentions. Residential intentions fell back into negative territory, with 16 percent expecting a pull back.

Expectations for capacity utilisation fell to the lowest level since 2009 at a net 0.4 percent versus 5.3 percent in the prior survey. Within the construction sector, a net 5.6 percent expect capacity utilisation to fall.

Profit expectations fell, with a net 16.3 percent expecting earnings to decline versus 12.5 percent in the prior survey. Within the construction sector, a net 37.5 percent expect weaker profits.

A net 41.7 percent of firms expect it to be tougher to get credit versus 40 percent a month earlier. Within that category, sentiment was the bleakest among agricultural firms, with a net 68.6 percent expecting tougher conditions.

Pricing intentions were largely unchanged with 22.5 percent expecting to lift prices in the coming year versus 22.6 percent in June. A net 46.7 percent expect higher costs versus 49.7 percent in June.

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