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Monthly Economic Indicators

Special Topic: What businesses are telling us

In preparation for the pre-election economic and fiscal forecasts, Treasury staff conducted around 45 interviews with businesses and business organisations in Auckland, Wellington and Christchurch in mid September to gain an insight into current and prospective economic conditions.

General business conditions picking up

Trading conditions have generally improved since our previous round of interviews in March which were conducted soon after the devastating Christchurch earthquake.  Most businesses were making a profit but had to work harder to do so.  The pick-up is consistent with the recovery in businesses' expectations for their own activity immediately after the earthquake (Figure 9).[1]

Figure 9 - Firms' own activity outlook
Figure 9 - Firms' own activity outlook   .
Source:  NZIER

Fortunes vary by sector but positive overall

Prospects in the primary sector are positive, with high returns for dairy, meat and wool and a promising start to the season.  Agricultural output was up 9.0% in the June quarter from a year ago.  Forestry is still doing well, although log export volumes and prices are down a little but still relatively high.  Annual growth in the value of log and timber exports has slowed from around 40% earlier in the year to less than 10% in August.

The performance of manufacturing exporters reflected their products and markets:  those dependent on housing markets were not doing as well as those in niche products; firms involved in services exports apart from tourism (e.g. design, marketing, branding and innovation) were prospering.  The high value of the NZ dollar was a concern for some, but generally not for those exporting to Australia.  Manufacturing output levelled off in the June quarter after two quarters of rapid growth, up 5.7% from a year ago.

The construction sector is in a holding pattern, waiting for the earthquake rebuild in Canterbury.  Construction activity was down 10% from a year ago in the June quarter on GDP figures.  Transport firms are returning to profitability after some lean years and making fresh investment.

Retail sector fortunes were mixed, with some regional variation (stronger in the upper North Island).  Many retailers are enhancing their on-line presence in response to changing consumer behaviour.  Sales of durable goods were up, with strong replacement sales in Christchurch and higher volumes supported by price discounting thanks to the high NZ dollar.  Electronic card transactions for core retail sales (ex auto stores) were up 7.2% by value in August from a year ago, including the GST rise. 

Some retailers reported lower sales as increased saving - including in KiwiSaver - contributed to lower spending.  The Rugby World Cup (RWC) is generating a “feel-good” factor and a positive effect on retail sales.  Although consumer confidence has recovered from earlier in the year, it is not back up to its previous level and consumers remain cautious.

Apart from the RWC, tourism has been weak as our traditional markets (apart from Asia and Australia) are experiencing slow growth and the high NZ dollar is curtailing spending and leading to heavy discounting.  The earthquakes, Chilean ash cloud and a poor ski season have not helped, especially in the South Island.  There has also been some displacement of other visitors by the RWC.  Total guest nights in July were up only 2.0% from a year ago, with domestic guests up 8.5% and international guests down 8.9%.

Modest profit growth expected …

Many firms reported that margins are reducing as input prices rise as a result of higher Chinese inflation and global commodity prices.  Despite this, firms expected modest profit growth thanks to tight cost control.  Many firms reviewed their operations as a result of the 2008-2009 recession and are now well-positioned to take advantage of growth opportunities.  This applies more to larger corporates than to smaller firms.

… but muted investment intentions

The outlook for investment was muted in the absence of stronger growth prospects.  Demand is a greater constraint on credit growth than supply.  There were reports of substantial investment in the primary, energy and infrastructure sectors, and in R&D and IT.  Non-residential investment was up 9.1% in the June quarter 2011 from a year ago.

Employment was generally steady with plans to expand as business grows.  Employment increased 2.0% in the June quarter from a year ago, according to the Household Labour Force Survey, half of which was in self-employment.  There were concerns about shortages of highly-skilled staff.  Wage settlements have generally been close to the rate of inflation less the increase in GST, but in a wide range of 0-5%.  Average hourly earnings increased 3.2% in the June quarter from a year ago.

Tax revenue to grow with profit recovery

Accounting firms expect to see an increase in provisional tax payments in the current fiscal year in line with profit growth.  This was supported by firms' own profit expectations.  Tax refunds are expected to remain at their 2010/11 level which was down 50% on the previous year.  More company income tax refunds were made as firms overpaid tax going into the 2008-2009 recession, but now they are taking care to pay the correct amount of tax.

Earthquake impact and recovery

The impact of the Christchurch earthquakes was felt chiefly by central city retail, accommodation and tourism businesses.  Despite some temporary disruption, activity seems to have carried on much as usual as many firms relocated.  Some substitution of activity occurred between firms, especially in retail, creating winners and losers.

There is widespread frustration at the delay in the start of the rebuild in Christchurch which is now not expected to begin in earnest until the second half of 2012.  The factors causing the delay are the continuing aftershocks, the time taken to settle insurance claims and obtain new cover, hold-ups in obtaining consents for demolition and rebuilding work, the availability of labour and equipment, access and safety issues, and land stability.


  • [1] September month and quarter business surveys were due to be released soon after we finalised this text and may reflect greater concern at global developments.
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