Confidence has taken a knock in the rural sector as shown in two separate surveys. Rabobank says farming sentiment continues to hover around decade lows.
While the dairy industry was still ''languishing'', Rabobank general manager of country banking New Zealand Hayley Moynihan said, the rural confidence survey showed sheep and beef farmers were increasingly positive about their own businesses, with 27% now having an optimistic outlook for their business performance.
Ms Moynihan said more than half of the country's farmers, 53%, believed conditions would worsen over the coming year, down from 56% in the previous survey.
The survey, in late August and September, accounted for two fortnightly dairy auctions making gains, following 10 consecutive declines, but showed dairy producers had not yet started to feel optimistic about a price recovery.
In the separate Westpac McDermott Miller quarterly consumer confidence index, overall consumer confidence in the economy had fallen sharply, but particularly in the rural sector, Westpac's chief economist Felix Delbruck said.
The net percentage of rural households which thought now was a good time to buy a major household item plunged from 19.4% to just 6.4%, its lowest result since just after Canterbury's second earthquake in 2011, he said.
''Consumers are much less optimistic for the wider economy, and their spending appetites have become more cautious, particularly in rural areas,'' he said in a statement yesterday.
He said the decline in confidence was not limited to rural regions, saying it had fallen hardest among higher income households, the middle-aged and older households and among men more than women.
"We suspect that concerns around asset values and investment returns have weighted heavily among the better-off and older consumers,'' he said.
Ms Moynihan, at Rabobank, said the latest survey continued to reflect two consecutive seasons of low dairy prices, weighing not only on sentiment in the dairy industry, but across the wider New Zealand economy.
''With dairy representing nearly 30% of the value of all New Zealand exports, the farmgate milk price is having a huge impact not only on export revenue, but on the wider economy, as farmers reduce their spending,'' she said.
Ms Moynihan said a drop in New Zealand milk production would be ''one of the key drivers'' leading to a supply adjustment in global export markets which would trigger longer-term price recovery.
''And the survey supported anecdotal reports that total New Zealand milk production could be down by between 5%-10% this season,'' she said.
The ASB yesterday said its own forecast 5% decline in dairy production prompted it to lift its forecast payout from $4.50 to $5 per kilogram of milk solids.
However, less encouraging were the latest gross domestic product (GDP) figures, which showed the economy expanded 0.4% in the second quarter.
''We expect the Reserve bank will need to trim its GDP outlook a touch, reinforcing that inflation pressures risk being slow in picking up,'' the ASB said.
Ms Moynihan said despite some buffering from the lower interest rates and weaker New Zealand dollar, the present situation had ''profoundly impacted'' on dairy sector sentiment.
However, dairy sector confidence is expected to further improve with last week's additional 16.5% jump in the global dairying auction index.
''The increase in the GDT price index is warmly welcomed by dairy producers, and is more representative of current global market fundamentals following the over-correction'' Ms Moynihan said.
''However, there is still a way yet to go until we see prices returning towards a more sustainable level.''
That concurred with Rabobank's view that a significant recovery in dairy prices was expected to be under way by mid-2016, Ms Moynihan said.
Mr Delbruck said given the low dairy forecast payout, peak in Canterbury's rebuild and ''shockwaves'' through sharemarkets from China, he was surprised confidence in New Zealand had not fallen further.
''They [New Zealand consumers] still think their own finances will be relatively immune to the downturn ... overall spending appetites are still reasonably healthy''.
He said during the next six months dairying would remain under pressure, unemployment rise and tax and lending restrictions would ''take some steam'' out of the Auckland housing market.
''As that occurs, consumer confidence could well fall further, and spending is likely to continue to decline,'' Mr Delbruck said.
