Economic activity affected by pandemic, survey reveals
Businesses were feeling more downbeat in the June quarter with business confidence at its weakest level since March 2020, a new survey has found.
Economic activity in the March quarter had been negatively affected by the acceleration in COVID-19 cases as people stayed at home either as a result of self-isolation or infection. Meanwhile, firms saw activity in their own business remained subdued.
The latest New Zealand Institute of Economic Research (NZIER) Quarterly Survey of Business Opinion also found 1% of businesses reported a decline in their own trading activity in the June quarter on a seasonally adjusted basis.
Meanwhile, 62% of businesses expect a deterioration in general economic conditions over the coming months – a marked increase from the 34% of businesses who felt pessimistic in the previous quarter.
NZIER principal economist and head of membership services Christina Leung said the services and building sectors were most downbeat in the June quarter.
“Seventy one per cent (71%) of services sector firms and 70% of building sector firms expect a worsening in conditions,” Leung said. “For both these sectors, it is a turnaround from the optimistic mood amongst these firms a year ago.”
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Leung said despite the solid pipeline of construction work, the building sector was facing acute capacity constraints stemming from a shortage of workers and materials.
“This is underpinning strong cost pressures, but the proportion of firms who were able to raise prices has fallen,” she said. “This is putting a further squeeze on operating margins. Finding labour and materials are the primary constraints for building sector firms with a sharp rise in the proportion of firms reporting their stocks of raw materials as being too low.”
Leung said despite the shakier outlook for the New Zealand economy, inflation pressures had continued to intensify.
“More firms are facing increased costs which are being passed onto customers in the form of higher prices,” she said. “Nonetheless, overall profitability amongst the firms surveyed remains weak.”
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Leung said businesses were continuing to pare back on investment plans in the face of uncertainty over the continued impact of the COVID-19 outbreak.
“Geopolitical tensions abroad and higher interest rates are both factors,” she said. “Fifteen per cent (15%) of businesses plan to reduce investment in buildings, while 13% plan to reduce investment in plant and machinery. This continued weakening in investment intentions points to a slowing in business investment over the coming year.”
