New Zealand firms’ gloomy outlook raises risk of recession
The Reserve Bank of New Zealand and most bank economists currently expect growth for the third quarter
[WELLINGTON] New Zealand businesses were less optimistic in the third quarter, raising the risk of another recession and deeper interest-rate cuts from the central bank.
A net 18 per cent of businesses expect the economy to improve in the next six months, down from 22 per cent in the second quarter, the New Zealand Institute of Economic Research (NZIER) said on Tuesday in its quarterly survey of business opinion. A net 14 per cent said that their own trading deteriorated in the third quarter, while a net 23 per cent fired workers.
Firms reported weaker trading for the seventh straight quarter as the economy struggles to recover from a deep recession in 2024. Gross domestic product shrank 0.9 per cent in the second quarter and today’s data add to the risks of another contraction in the three months to September.
“It would suggest a flat result, I would say, with potential for a small contraction” in the quarter, NZIER principal economist Christina Leung told a briefing.
The Reserve Bank of New Zealand (RBNZ) and most bank economists currently expect growth for the third quarter.
The RBNZ is set to cut interest rates tomorrow with economists split between a 25 basis-point move or a more aggressive 50-point reduction. Leung expects a quarter-point move but could not rule out a larger cut.
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“If that was where they were leaning to, I don’t think this would be the thing that would stop them from going 50,” she said of the business confidence report.
Overall, the report showed that the disappointing economic performance has made firms more cautious, with the outlook for hiring and investment suggesting there is less conviction about the recovery going forward, Leung said.
A net 9 per cent of firms expect their own trading activity will improve in the three months to December and 4 per cent expect to hire workers before the end of the year. But investment intentions are sharply lower, with a net 13 per cent expecting to reduce spending on plant and machinery over the coming year.
Soft demand is driving slack in the labour market, making it easier for firms to find unskilled workers. Still, it is harder to find skilled workers, which may reflect an exodus of talent, Leung said.
More businesses reported rising costs and a net 11 per cent of firms increased prices in the third quarter. As well, 7 per cent expect to raise prices in the fourth quarter, which suggests some lift in inflation pressures, Leung said. BLOOMBERG
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