According to Bloomberg’ yesterday, New Zealand businesses grew less pessimistic about the economic outlook after the central bank slashed interest rates by the most in seven years.
The NZ Reserve Bank cut rates by a surprise 0.50% last month, after a 0.25% trim in July.
Bloomberg looked at the latest quarterly survey from NZ’s Institute of Economic Research and reported yesterday: "A net 19 percent of companies surveyed last quarter expect the economy will worsen over the next six months. That’s less than a net 64 percent that forecast deterioration in the second quarter. The net figure is calculated by subtracting pessimists from optimists."
And there was a patch of optimism in the report.
But the detailed release from the Institute painted a far less rosy picture.
"Results from NZIER’s Quarterly Survey of Business Opinion (QSBO) for the September 2008 quarter point to a continued recession in the second half of 2008.
"Real Gross Domestic Product (GDP) declined 0.2% in the June 2008 quarter, following a 0.3% decline in the March 2008 quarter, which confirmed the first technical recession in New Zealand since 1997.
"Indicators of domestic trading activity from the latest QSBO suggest that real GDP declined again in the September 2008 quarter, and is likely to decline further in the December quarter, which makes four consecutive quarters of negative growth starting March 2008.
"On a seasonally adjusted basis, a net 32% of firms reported a decline in their own activity and a net 13% expect their trading activity to fall in the next three months.
"The 32% figure is the highest reporting a decline since March 1991. The trading activity indicators and real GDP tend to move together over time, which suggests negative GDP growth in the second half of 2008.<" the Institute concluded.
"92% of the responses to the latest survey were received within two weeks after the Reserve Bank’s announcement on 11 September that it was reducing the Official Cash Rate (OCR) by 50 basis points to 7.50%.
"Virtually all the responses to the survey were in the mail before the 26 September release of data showing a 0.2% decline in real GDP in the June quarter. This decline in real GDP was close to financial market participants’ average expectations.
"Many of the responses were posted around the time of much speculation in the media about the impact on the New Zealand economy of the financial turmoil in the USA."
But there was a reason to Bloomberg’s stance: there was an improvement in what the Institute called the "general business situation" in the country.
"Although indicators of activity were historically low in the latest survey, indicators of confidence about the general business situation improved significantly.
"They remain in the negative territory, however.
"On a seasonally adjusted basis, a net 24% of firms expect the general business situation to deteriorate in the next six months. This figure is down from 54% that expected deterioration in the previous survey.
"The business confidence statistic has improved significantly across all of the four sectors (manufacturers, builders, merchants, and services) and three geographical regions we separately analyse.
"In terms of sectors, firms operating in the merchandise industry recorded the most sizable absolute change in the confidence measure, from -66% to -10%.
"The depreciation of the New Zealand dollar and fall in interest rates over the quarter are likely to have been significant factors in this change. In terms of the three geographical regions we separately analyse, the Upper North Island region recorded the most sizable improvement in the confidence measure, from -67% to -17%."
The Institute’s comments came a day after the NZ Government treasury sharply downgraded its 2008 growth forecasts. They also came before the NZ dollar fell sharply (like the Aussie), dropping 4% on Monday night’s volatile trading before steadying somewhat yesterday.
The government said its budget deficit will be almost twice as large as earlier forecast as the slumping economy cuts tax revenue from consumers and businesses.
The government cut its growth forecast to just 0.1% for the year to March 31, 2009, compared to the May prediction of 1.5%.
In a fiscal and economic update ahead of the November 8 election, the NZ treasury revealed there had been a sharp deterioration in the economy and its outlook prospects since the budget in May.
The news will make the job tougher for Prime Minister Helen Clark in that November 8 poll. It’s continuing to trail the National party in the polls.
The treasury said the government’s cash deficit in the year to June would rise to NZ$5.9 billion compared to the NZ$3.5 billion deficit forecast in May.
New Zealand’s GDP contracted in the first and second quarters of the year, as it eased into the first recession in more than 10 years.
Adding to the pressures on growth, spending and the balance of payments is the slump in global dairy prices: down some 35% and more thanks in part to the economic slump and also the tainted milk scandal in China that has ensnared the big dairy monopoly, Fonterra.
The NZ Treasury expects the economy to recover in the year to March 31, 2010 with growth forecast of 1.8%. But that is down from the May forecast for 2.3%.
