Business confidence drop continues

Business confidence fell for a third consecutive month in the latest National Bank business outlook report.

There was now a clear change in direction and weakness in confidence was broad-based, the report's authors said.

Overall, a net 28 percent of respondents expect an improvement in business conditions in the year ahead in the July survey compared with 40 percent in the June survey. The February figure of 50.1 percent was the highest reading for business confidence since 1999.

A net 32 percent expected better times ahead for their own business, compared to 39 percent in the June survey.

"We characterised last month's decline in confidence as the economy merely shifting from a gallop to a canter. Perhaps this month is seeing a shift from a canter to a trot," economist Khoon Goh said.

Employment and investment intentions both fell five points.

"The former is still flagging positive jobs growth ahead, but the latter has fallen below its historical average and does not portend of a marked pick up in investment spending in the near-term," Mr Goh said. "This is a worry from a supply side perspective."

There was also a 10-point fall in profit expectations to plus nine. The largest decline was in the agricultural sector, where a net 2 percent now expect a lower profitability this month, compared to a net 15 percent expecting an improvement last month.

The Reserve Bank of New Zealand is due to announce a decision on the official cash rate level tomorrow.

"The majority of respondents are already resigned to the fact that interest rates are heading higher, with a net 83 percent expecting rates to rise over the next 12 months.

"But with signs that the economy is not surging away and momentum is levelling out, we find it difficult to envisage rates will move up every six weeks," Mr Goh said.

- NZPA