Business outlook negative —survey

Press, 28 December 1989, Page 3

Business outlook negative —survey

Wellington reporter The latest National Bank Business Outlook reports a continuing fall in business confidence.

The survey also indicates that inflation expectations are still rising and that investment intentions remain flat.

Farmers remain optimistic about farming in the longer term, but are pessimistic about the general business environment.

The bank reports the outlook for the retail sector is deteriorating fast, and says manufacturing is as vulnerable as ever. Behind the fall in confidence is:

• Predominantly “negative” business news, including yet another revision in the current account statistics; some major company failures; and concern about the Government’s ability to meet Budget targets, mainly because of delays in asset sales.

• A slump in retail sales after the rise in GST.

• Increases in producer costs.

• A poorer environment for interest rates.

The average level of inflation expectations for the next 12 months among those surveyed is 7.1 per cent, up from the 7.0 per cent in November. Business Outlook said it was the third consecutive rise in the aggregate index, and noted that since the November survey the producer Price Indices for the September quarter had shown unexpected rises of 2.6 per cent. The Farming Input Price Index rose 3.3 per cent that quarter, although the bad news was partly off-set by a favourable change in the Octo-

ber Food Price Index. “All in all, however, the news on inflation continued to be bad in November. “There is now a widespread perception, shared by the Reserve Bank, that inflation will peak at a higher level, and later, than most had anticipated prior to the release of the latest producer price statistics.” If the Reserve Bank does not change its policy, and let financial markets add the inflation premium into interest rates it faces the risk of still higher inflation and a credibility loss, the bank said. If it takes an active role and tightens monetary policy, it risks jeopardising an already fragile recovery. Whatever action was taken an early decline in interest rates in the new year looks increasingly unlikely. Since September the percentage of respondents who believed business conditions would deteriorate rose from 2.5 per cent to 13.6 per cent; those expecting an improvement dropped from 69.2 per cent to 31.2 per cent; and those expecting it to be unaltered rose from 28.3 per cent to 55.2 per cent.

Farming was .the most negative sector about general business confidence, and the only one to record a negative figure — a higher percentage expecting deterioration than improvement. Farmers remain optimistic, however, about the prospects for their own sector, in contrast to retailers, who in three months have gone from the most optimistic to the most pessimistic sector in the survey.