Nzier Report

NZIER media release embargoed until 10am, Tuesday 7 April 2009

Embargoed until 10am, Tuesday 7 April 2009

To the Chief Reporter NZIER Quarterly Survey of Business Opinion press release Investment intentions threat to recovery Results from the latest NZIER Quarterly Survey of Business Opinion (QSBO) point to a further contraction in domestic trading activity in the first three months of 2009. This measure of activity is a leading indicator of GDP growth and suggests that the GDP figure for the first quarter of 2009 will be as bad as, if not worse than, the 0.9% contraction seen in the last quarter of 2008. “When seasonally adjusted, the net balance 1 of firms reporting a fall in their own activity worsened to 47% in the March quarter, which is the worst result for this indicator since at least 1970. Expectations improved slightly, but are still very low. A net 38% of firms reported that they expect a drop in their own activity in the June quarter. The recession is therefore likely to be deeper than previously forecast.”

Economic growth and domestic trading activity Quarterly percent change (LHS), net percent seasonally adjusted (RHS) 3.0

60

2.5

50

2.0

40

1.5

30

1.0

20

0.5

10

0.0

0 -10

-0.5

-20

-1.0 Real GDP (LHS) -1.5 -2.0

Domestic trading activity, past 3 months (RHS) Domestic trading activity, next 3 months (RHS)

-30 -40

-50 -2.5 95.1 96.1 97.1 98.1 99.1 00.1 01.1 02.1 03.1 04.1 05.1 06.1 07.1 08.1 09.1

Source: Statistics New Zealand, NZIER Quarterly Survey of Business Opinion

Businesses remain gloomy – a net 65% of firms reported that they expect general business conditions to deteriorate over the next six months. A sliver of silver lining is that confidence has at least halted its downward track, although it remains at a very low level.

1 The percentage of firms reporting their own trading activity to have fallen minus the percentage reporting their own trading activity to have risen, adjusted for the percentage reporting their own trading activity to have stayed the same and firms that did not provide a response.

NZIER media release embargoed until 10am, Tuesday 7 April 2009

“Firms are reporting that weak sales growth is having a significant impact on their employment and investment decisions. Facing falling demand, firms are now operating at 86.3% of full capacity. They are responding rapidly and rationally to this drop off in activity by trimming costs – including their labour and capital inputs – and lowering selling prices. “Labour market indicators have worsened – employment intentions are the lowest since late 1991, finding skilled and unskilled labour has become historically easy and overtime worked has been falling for more than a year. Investment intentions for the next six months are the lowest recorded since the series started in 1975, for both buildings and plant and machinery. If these intentions are realised, cutting back on investment now could hold back future growth and make for an even longer and slower recovery.” The latest QSBO suggests little inflation risk in the short run. For the first time in nearly 10 years, a net balance of firms reduced their selling prices in the last three months. Increasing numbers of firms expect cost pressures to continue easing and prices to fall in the near future, which suggest that inflation will drop further.

CPI inflation and firms’ pricing intentions Annual percent change (LHS), net percent (RHS) 6

60 CPI apc (LHS)

5

Firms' pricing intentions, 3 quarters earlier (RHS)

50

4

40

3

30

2

20

1

10

0

0

-1

-10

-2 95.1 96.1 97.1 98.1 99.1 00.1 01.1 02.1 03.1 04.1 05.1 06.1 07.1 08.1 09.1

-20

Source: Statistics New Zealand, NZIER Quarterly Survey of Business Opinion

“With inflation off the radar, the QSBO results suggest scope for further monetary stimulus. At its 30 April announcement, the Reserve Bank has the opportunity to make another cut to the Official Cash Rate (OCR) to bolster flagging consumer spending, which in turn would encourage firms to maintain their labour and capital stocks in readiness for meeting growing demand once the domestic and global economies start to pick up.”

NZIER media release embargoed until 10am, Tuesday 7 April 2009

Key results Firms’ own trading activity •

On a seasonally adjusted basis, the net balance of firms reporting a decrease in their own activity worsened from 44% in the December quarter to 47% in the March quarter – the worst since at least 1970.

•

Expectations improved slightly, but remained low – a net 38% of firms reported that they expect their own activity to fall in the next three months, compared with a net 43% expecting a decline in the previous survey.

Employment outlook •

A net 36% of firms reported that they intend to reduce staff numbers over the next three months, after a net 34% actually did so in the last three months. These figures are the highest since late 1991.

Employment intentions Percent of firms expecting numbers employed to go up, stay the same or go down, next 3 months 70 49

50

43

30

10

8 0

-10

-30 -36 -50 UP

Source:

•

SAME

DOWN

N/A

NET

NZIER Quarterly Survey of Business Opinion

Finding skilled and unskilled labour has become historically easy. A net 42% of firms reported that it had become easier to find skilled labour and a net 63% that it had become easier to find unskilled labour. These figures are both their highest for more than 30 years.

NZIER media release embargoed until 10am, Tuesday 7 April 2009

Ease of finding labour Net percent, past 3 months 80 60

Skilled labour

40

Unskilled labour

20 0 -20 -40 -60 -80 99.1

Source:

00.1

01.1

02.1

03.1

04.1

05.1

06.1

07.1

08.1

09.1

NZIER Quarterly Survey of Business Opinion

Investment intentions •

Investment intentions deteriorated further in the March quarter to the lowest since the series started in 1975. A net 46% of firms reported that they intend to reduce investment in buildings over the next 12 months and a net 44% intend to cut back on investment in plant and machinery.

Investment intentions Net percent, next 12 months 20

10

0

-10

-20

-30 Building investment -40 Plant investment -50 99.1

Source:

00.1

01.1

02.1

03.1

04.1

05.1

NZIER Quarterly Survey of Business Opinion

06.1

07.1

08.1

09.1

NZIER media release embargoed until 10am, Tuesday 7 April 2009

Capacity utilisation •

In the March quarter, capacity utilisation dropped to 86.3% – the lowest since June 1992.

Manufacturers and builders: capacity utilisation Median utilised capacity, CUBO (capacity utilisation business opinion) 0.94

0.92

0.90

0.88

0.86

0.84

0.82 99.1

Source:

00.1

01.1

02.1

03.1

04.1

05.1

06.1

07.1

08.1

09.1

NZIER Quarterly Survey of Business Opinion

Costs and prices •

The net balance of firms expecting an increase in input costs has eased from 27% in December to 21% in March.

•

A net 6% of firms reported that they intend to lower their selling prices in the next three months, after a net 2% actually did so in the last three months. The last time a net balance of firms reduced selling prices was June 1999.

Expectations about general business situation •

The seasonally unadjusted business confidence statistic remained low across all of the four sectors (manufacturers, builders, merchants and services) and three geographical regions (Upper North Island, Lower North Island and South Island) we separately analyse.

Regional: summary of business confidence Net percent of respondents* that expect business conditions to improve (+) or deteriorate (-)

September 2008

December 2008

March 2009

Next 6 months

Next 6 months

Next 6 months

Upper North Island

-17

-62

-60

Lower North Island

-11

-60

-68

South Island

-25

-65

-68

Firms operating throughout New Zealand

-26

-74

-66

Economy wide

-19

-64

-65

Interest rate expectations

NZIER media release embargoed until 10am, Tuesday 7 April 2009

•

A net 71% of financial services firms expected interest rates to be lower over the next twelve months than in the past year.

Financial services: interest rate expectations Net percent, next 12 months 100 80 60 40 20 0 -20 -40 -60 -80 -100 99.1

Source:

00.1

01.1

02.1

03.1

04.1

05.1

06.1

07.1

08.1

09.1

NZIER Quarterly Survey of Business Opinion

For further information, please contact: Dr. Johannah Branson Senior Economist DDI (04) 470 1812 Main (04) 472 1880 Mobile 021 504 095 Email [email protected]

or Claire Gall Economist DDI (04) 494 7968 Main (04) 472 1880 Email [email protected]

NZIER media release embargoed until 10am, Tuesday 7 April 2009

Economy wide: summary of key results Net percent of respondents* that expect an improvement in:

September 2008

December 2008

March 2009

Next 6 months

Next 6 months

Next 6 months

General business situation - Actual

-19

-64

-65

- Seasonally adjusted

-24

-77

-58

Net percent of respondents* that experienced/expect an increase in:

December 2008

March 2009

June 2009

Past 3 months

Past 3 months

Next 3 months

Domestic trading activity - Actual

-39

-45

-39

- Seasonally adjusted

-44

-47

-38

Ease finding skilled labour

20

42

--

Ease finding unskilled labour

43

63

--

Average costs

42

29

21

Average selling prices

9

-2

-6

Profitability

-49

-51

-45

Capacity Utilisation (CUBO)

88.8

86.3

--

*The net percent of respondents is obtained by subtracting the percentage of respondents saying “down” from those saying “up” and dividing the value by a corrective factor (100 minus the percent of “N/A” responses). That is: (up − down) (100 − N A) × 100 = net percent.

(

)

83% of the responses to the latest survey were posted after the Reserve Bank’s announcement on 12 March 2009 that it was reducing the OCR by 50 basis points to 3.0%. 97% of the responses to the survey were posted before the announcement on 27 March 2009 of the December quarter’s 0.9% decline in real GDP.