Less business confidence

Press, 10 February 1982, Page 23

Less business confidence

Business confidence has lessened since the election, according to a National Bank opinion survey. The survey showed that traders in particular expressed less confidence in prospects for this year, and that confidence in the manufacturing sector continued to decline. But the commercial building sector remained relatively optimistic about the year because of an expected growth in fixed capital investment in energy prospects. The retail sector's confidence has waned slightly, although this varied frorii region to region; manufacturers were expecting a stable level of output for the next six months. Residential construction rose during the past year, because of demographic factors, an easing in lending constraints and the, convergence of existing and new house prices. But more recent restrictions on lending should have an impact on house prices and building activity this year, the survery said. Farming confidence was described as moderate with

investment expected to continue to be stable. Overseas returns have been depressed because supplementary minimum prices encourage farmers to retain stock on farms. There were few reasons to expect an improvement in inflation this year, because of the large rise in house prices last year and increases in rail and postal charges, as well as meat prices (because of SMPs) and wages. Private sector credit showed the most spectaular growth during 1981 (32.8 per cent increase in the September year compared 'with 16.7 per cent in the year to September, 1980), but the Ml and M 3 sectors grew relatively modestly. The strong expansion in private sector credit stemmed from a cyclical rise in the demand for trading bank lending, which saw the reserve/asset ratio drop substantially. The amount of reserve assets in the trading bank system actually dropped by $95 million during the year. The growth in private sector credit acted as a secondary injection to the money

supply, in addition to primary injections from the Government accounts. But these injections were largely offset by a doubling in the current account deficit on overseas exchange transactions. a higher than expected level of tax revenue and the successful issue of Government premium stock and bonds late in the year. The survey says that the result of these factors was that the growth rates of trading bank lending and deposits had diverged since the middle of last year. Legislative control on the price of private sector financial assets had compounded the problem. Because of this, trading banks were forced to tighten restrictions on granting new credit which already had had a noticeable effect on lending growth. In the last quarter of last year, the monthly average seasonally adjusted growth in lending was cut back to 0.7 per cent, against a monthly average of two per cent for the year. But because there has been virtually no growth in deposits the trading bank lending-deposit ratio has remained high.