Gloomy NZIER survey increases the risk of RBNZ OCR cut in April

New Zealand Institute of Economic Research (NZIER) Survey of Business Opinion was released earlier today. Data showed business confidence dropped in the first quarter of 2016, with a net 1% of businesses expecting a deterioration in the economy in the next six months.

Only a net 6% of businesses expect an improvement in demand – the lowest level since early 2011. Even the retail and services sectors, which has seen solid demand over 2015, are bracing for some softening in sales

Businesses are paring back on hiring in anticipation of softer demand. Manufacturers are particularly negative about hiring, with a net 5% of manufacturers expecting to reduce staff numbers in the next quarter. Capex likely stabilised after trending lower over 2015, suggesting modest growth in business investment.

The effects of rising cost pressures are evident across all the sectors. A net 26% of businesses reported higher costs in the March quarter – the highest level since mid-2012, with expectations of further increases ahead. However, businesses have been unable to pass on these rising costs in the form of higher prices, and this has impacted negatively on profitability.

RBNZ has indicated it is likely to cut the OCR further this year and downbeat mood amongst businesses suggests shows an increasing risk the central bank will choose to cut in April in a bid to stimulate the New Zealand economy.