New Zealand Business Confidence Falls on Rising Costs

By Gavin Evans

July 31 (Bloomberg) -- New Zealand business confidence fell for the first time in four months in July as rising fuel, food and credit costs slowed consumer spending and crimped profits.

A net 43.2 percent of companies expect the economy will worsen over the next 12 months from 38.7 percent in June, according to a report released by ANZ National Bank Ltd. in Wellington today. The net figure subtracts the number of pessimists from optimists.

Reserve Bank Governor Alan Bollard cut the official cash rate a quarter point to 8 percent last week, his first reduction in five years, saying a slowing economy will ease inflation. The reversal in business confidence shows the economy is ``firmly in contraction mode,'' ANZ National said today.

``Hopes that the dip in momentum over the first half of the year was merely of a technical nature and will be short-lived are far from reality,'' Cameron Bagrie, ANZ National's chief economist, said in the report.

New Zealand's economy contracted 0.3 percent in the first quarter. Eight of 13 economists surveyed by Bloomberg News expect it also shrank in the three months ended June 30, putting the nation in its first recession since 1998.

Asked about their own business activity, a net 8.2 percent of companies said sales may fall over the next year, from 4 percent expecting a decline in the previous survey.

Disconcerting

That decline marked the first five-month period of own- business pessimism since the study started in 1988 and was the most disconcerting aspect of the latest survey, Bagrie said.

A net 27 percent of the companies surveyed expect profits will fall, from 19 percent a month earlier. About 14 percent of firms plan to fire workers and a mast expect to reduce investment in the next year.

A net 43 percent say they will raise prices in the next three months, compared with 41 percent in the June survey.

Bollard last week said annual inflation will probably accelerate to more than 5 percent in the year ended Sept. 30 from 4 percent in the 12 months to June. Still, he expects inflation will be less than 3 percent by mid-2010.

``Bollard has delivered much needed interest-rate relief and promises more,'' said Bagrie. ``It's a brave but welcome move considering the realities of where inflation resides.''

All 15 economists surveyed by Bloomberg News expect Bollard will cut borrowing costs by a further quarter point at his next review on Sept. 11.

To contact the reporter on this story: Gavin Evans in Wellington on gavinevans@bloomberg.net