Business confidence is unlikely to be lifted by news of a June-quarter shrinkage of business optimism and its likely consequence of stalling a recovery from weakness in manufacturing, construction, and investment intentions. The NZIER’s latest survey found firms are less optimistic as the economy failed again to deliver on expectations of a strong recovery: business confidence eased from 36% to 28% (seasonally adjusted). NZIER principal economist Shamubeel Eaqub warns the outlook is still “fragile.” He is worried the economy is not recovering as strongly as it should, at this stage of the cycle. The slowing of global economic growth and financial market dislocation further hamper prospects of NZ picking up steam.

Global Mood. Sentiment won’t be improved by knowing the pessimism is widespread, and Aust businesses are lacking confidence heading into the new financial year. They expect lower sales, prices and profits, according to a Dun & Bradstreet survey. Two British surveys point to the sluggish and fragile economic recovery in the UK losing more momentum, threatening a relapse into recession. Italian business confidence has fallen from the highest level in almost two years after a drop in domestic orders offset the benefits for exports from the euro’s slide.

Rate Rise On Hold? A critical influence on business sentiment in NZ, before the next quarterly survey, will be whether the June findings are interpreted at the Reserve Bank as a sign the economy is in no shape to endure further interest rate rises. Northern Employers and Manufacturers Assn CEO Alasdair Thompson says the June-quarter survey data confirm the economic recovery has hit a plateau and warns another OCR rise could cause it to slip into reverse.

Not All Bad. Westpac chief economist Brendan O’Donovan disagrees. He emphasises the importance to NZ of the Asian economies, which are still growing fast and are upbeat about their prospects. Commodity prices are soaring, too. He sees a standard economic recovery as in 1998, starting in the goods-producing sectors with a build-up of inventories flowing through to housing and (reflected in March quarter figures) employment. On the other hand BERL chief economist Ganesh Nana refers to sagging retail sales, a decline in business investment and export returns in the year to May 31 – they were 7% down from a year earlier. Among our top 10 commodities only logs (+11%) and wine (+5%) recorded improvements. The stronger currency resulting from an OCR rise won’t help what is supposed to be an export-led recovery.

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