Economy steady, unspectacular

Business confidence fell in the three months ending September, although commentators say the economy is still growing in a steady but unspectacular fashion.

The NZIER Quarterly Survey of Business Opinion (QSBO) showed a drop in overall business sentiment. A net 7% of firms were positive about the outlook, compared to 17% in the June quarter.

NZIER chief economist Christina Leung said a fall in business confidence was not unusual heading into a general election.

Businesses and households had held off committing to major spending given uncertainty about the formation of the new government.

Firms also reported an easing in demand in their own business where 14% reported increased demand . That was a drop from 17% in the three months ended June.

Businesses were optimistic about a rebound in demand in the next quarter - 27% expected stronger demand.

In most regions, business confidence fell. Northland was a notable exception, probably because of election campaign promises of major spending on infrastructure in the region, she said.

Building sector confidence took a hit, falling from 18% to 3%. June quarter GDP showed another contraction in construction. Indicators suggested further softening in construction activity was likely in the near term.

Profitability and confidence in the building sector had also deteriorated as building firms were finding it more difficult to pass on rising costs, Ms Leung said.

Services sector confidence fell sharply, driven by weaker demand in the financial services sector. Demand in the financial services also fell, reflecting the slowing in house market activity, Ms Leung said.

''Despite lower confidence and demand, businesses' hiring and investment plans remain positive. Businesses report increased difficulty in finding unskilled workers while shortages for skilled labour remain acute.''

ANZ economist Con Williams said there was an overall impression of an economy growing at a steady but unspectacular pace.

The margin squeeze was also consistent with an economy grappling with large-cycle challenges and the businesses finding reduced pricing power.

The weaker sentiment from the construction and trade services sector was also consistent with the view the economy was in a transition phase. Some of its previous growth drivers - housing, construction, tourism and migration - had peaked and there was a wait for others to fill the void, he said.

Westpac senior economist Satish Ranchhod said the pricing measures were similar to last quarter, both in terms of expected costs and price increases.

Capacity utilisation fell slightly to 92.6%, and although finding workers was reported to be more difficult, fewer firms reported that as their biggest constraint on growth.

These measures were broadly consistent with inflation nearing the Reserve Bank's 2% target, but did not suggest a risk of inflation breaking higher, he said.

In Australia, consumer confidence had slipped in the past week, weighed down by sentiment around current and future finances and as uncertainty about longer-term prospects lingered.

The ANZ-Roy Morgan consumer confidence index fell 0.6% to 113.4 in the week to October 1. Improved sentiment towards economic conditions was offset by a fall in households' views of their own finances.

Consumers were more optimistic about current and future economic conditions in the past week - up 2.5% and 2% respectively - but households' views towards both current and future financial conditions fell 1.6%.

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