Less Optimistic of New Zealand Companies

New Zealand companies are less optimistic about the outlook for sales and trading in the third quarter as rising interest rates and a strong currency increase costs and crimp earnings.

A net 9 percent of firms expect domestic trading will increase compared with 16 percent in the previous poll, the New Zealand Institute of Economic Research said today in Wellington. About 19 percent of 518 businesses surveyed in June expect profits will increase in the next three months compared with 25 percent in March, the institute said.

Reserve Bank of New Zealand Governor Alan Bollard raised the benchmark interest rate to a record 8 percent last month, the third increase this year, to curb spending and a housing boom. Falling business confidence may curb economic growth, adding to signs Bollard needn't raise borrowing costs again.

``The absence of signs of increased inflationary pressure is likely to give the Reserve Bank some comfort and allow it to adopt a wait-and-see stance,'' Brent Layton, director of the institute, said in a statement.

There was a 25 percent chance of a rate cut at the next review on July 26, according to an index calculated by Credit Suisse.

The New Zealand dollar bought 78.09 U.S. cents at 10:08 a.m. in Wellington from 78.07 cents immediately before the report.

New Zealand's dollar has surged 27 percent the past year, crimping exports, which make up 30 percent of the $102 billion economy. The strong currency also makes imports cheaper, increasing competition for locally made products.

Economy Outlook

The survey excludes farmers, many of whom are benefiting from a 30 percent surge in commodity export prices the past year, led by butter and milk powder.

A net 37 percent of companies expect the economy will deteriorate in the next six months, today's report showed. That compares with a net 15 percent in the previous survey.

The net figure is calculated by subtracting the pessimists from the optimists. Today's survey showed 9 percent of companies surveyed expect the economy will improve in the next six months and 46 percent say it will deteriorate.

The trading outlook is consistent with ``fairly robust growth'' in the second half of 2007, Alice Wang, an economist at the institute, said at a news conference. The survey responses were received after Bollard's June 7 rate increase.

Hiring, Investment

Fewer companies said they are likely to add workers in the next three months, the survey showed. Investment intentions also declined, the institute said.

A net 48 percent of companies expect their costs will increase over the next three months from 50 percent in the previous survey.

Bollard said on June 7 domestic inflation was projected to stay high and would have exceeded the 1 percent-to-3 percent range he targets had he not increased borrowing costs.

A net 35 percent of companies surveyed said they are likely to raise prices in the next three months from 40 percent in the March survey.

Economists such as Craig Ebert at Bank of New Zealand Ltd. closely watch the business survey, monitoring the rate of capacity utilization, which measures how much plant, equipment and labor is employed, and the difficulty in finding workers, to gauge inflation pressures in the economy.

``What will be apparent is the extent to which the economy is already over-stretched,'' Ebert said from Wellington before the report was released. ``All the feedback from firms is that the ability to attract and retain staff is still their biggest concern.''

Capacity utilization fell to 91.6 percent from 91.8 percent in the first quarter, the institute said. Capacity constraints rose for exporters and declined for non-exporters.

About 43 percent of companies surveyed said it was harder to find skilled workers than three months earlier. Three percent said it was easier. Firms are finding it harder to find unskilled labor.

source:bloomberg.com