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NBNZ Business Outlook Survey: August 1999

Economic Note (New Zealand) NZ

Key Points

The NBNZ business confidence index slipped back slightly in August, with a net +20% of respondents now expecting conditions to improve over the next twelve months, down from a net +24% in July. This is the sixth consecutive monthly decline from the recent peak of +68% recorded in February.

Despite the decline in business confidence, respondents' expectations for their own businesses edged up one percentage point to +39% from that recorded last month. Firms' expectations of their own investment intentions eased back, profitability expectations remained flat, while capacity utilisation moved up. On of the external front, export intentions continued to build momentum with manufacturers' export expectations at close to six-year highs. Respondents' expectations for interest rate rises also increased sharply, with a net +60% now expecting an increase over the year ahead.

On the inflation front, pricing intentions were reasonably stable, with a net 12% of respondents intending to raise prices, while annual inflation expectations edged up to 1.9%.

National Bank Business Aug-99 Jul-99 Jun-99 Outlook Survey

Business Confidence +20 +24 +29

Activity Outlook +39 +38 +38

Exports +45 +40 +38

Investment +15 +17 +18

Capacity Utilisation +30 +24 +27

Profits +22 +22 +24

Pricing Intentions +12 +11 +11

Inflation Expectations 1.9 1.8 1.8

Commentary

The modest easing in sentiment for the month appears to reflect the sharp increase in the number of respondents expecting a rise in interest rates later this year. However, despite the slippage in confidence, the less volatile respondents' assessment of their own activity prospects has remained reasonably stable. Perhaps the most significant feature of these data has been the on-going improvement in export expectations. While these trends have yet to be fully translated into merchandise trade data, the prospects for improving trading partner growth rates, together with a more competitive exchange rate, reinforces our expectation for a more balanced activity profile over the year ahead.

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