Uncertainty over new government policies appears to have made New Zealand businesses more downbeat.
The latest NZIER quarterly survey of business opinion showed a sharp drop in business confidence following the September election. A net 11% of businesses were now expecting economic conditions to deteriorate in the first six months of 2018.
NZIER principal economist Christine Leung said the fall was more modest when it came to businesses' own demands.
A net 10% of businesses reported a lift in own trading activity in the December 2017 quarter, an easing from the net 13% in the previous quarter.
Previous QSBO surveys had shown business confidence tended to fall after Labour took office, in contrast to a lift in confidence when National took office. The effect on actual activity had usually been muted, she said.
''Businesses may be worried about the outlook for the New Zealand economy under the new Labour-led Government. But for now, this is not reflected in demand in their own business.''
The fall in business confidence was broad-based across the sectors. Retailers and manufacturers were particularly downbeat, Ms Leung said.
The pessimism was not reflected in activity indicators.
Domestic sales remained solid in the retail and manufacturing sector. The building sector also reported solid output and new orders.
Across the regions, the pessimism was evident in the urban regions, including Auckland, Wellington and Canterbury in particular.
Pessimism in dairy-intensive regions such as Southland and Taranaki suggested increasingly dry weather in recent months had dampened confidence, she said.
A worrying development was the continued weakening in profitability. A net 7% of businesses reported a fall in profitability in the December quarter.
Businesses expected further deterioration in the three months to March, in contrast to the trend over the past year, where businesses had remained optimistic about a recovery despite weak profitability, Ms Leung said.
ANZ economist Con Williams said that economy-wide, a net 38% of firms expected higher cost pressures in the next three months, the highest since 2011.
Firms did intend to pass on those cost increases, but with profit expectations also deteriorating, there appeared to be a degree of resignation over how successful they were likely to be in this.
