BNZ finds rising optimism

By | May 11, 2009

11 May 2009


Business confidence has improved substantially in the past month, with a net 27 percent of respondents to a BNZ survey expecting the economy to be in better shape in a year.

This compares with 23 percent of respondents expecting deteriorating conditions in the BNZ’s survey two months ago and zero percent expecting change in the bank’s early April survey.

Chief economist Tony Alexander says the improvement is a record high, matched only by the results of the BNZ’s confidence survey in September last year, just before the collapse of Lehman Bros in the US.

Alexander says the numbers have wider implications for the financial markets – and for borrowers, in particular.

During the past couple of months, as the Great Depression scenario receded, investors have been shifting from safe-haven assets towards growth and more risky investments, he says.

This helps explain the near-30 percent rises in some sharemarkets, the 10c jump in the $Kiwi since early March and the increases in fixed wholesale funding costs facing the banks.

Alexander says the BNZ’s survey results, along with other recent data releases, suggests unless world economic data turns down again, there will be continued upward pressure on fixed borrowing costs.

In other words, higher interest rates.

Why has sentiment lifted? The BNZ attributes it to buyers running down stocks and needing to re-order, lower interest rates, and the general improvement in sales and sentiment in recent weeks.

But the comments from a selection of Alexander’s survey respondents show while activity might be picking up, the situation for individual businesses and operators is still dire.

Around the sectors: Advertising and marketing are depressed; accountancy is busy (“plenty of work with more advisory and budgeting work now that banks are backing away from preparing budgets with clients”, and more cash flow forecasting work and bank compliance) though clients are slow in paying; legal firms are busy; manufacturing orders are picking up domestically and from offshore; printing and publishing are bleak; property development is very bleak; commercial and industrial real estate tenants are reluctant to commit though investor interest is improving; there are significant shortage of listings in residential real estate but multiple offers and properties are selling quickly; retail is still very weak though one or two operators doing okay; tourism and travel overall are getting weaker with worries about the coming year; transport and the car industry are still weak.

Individual comments include multiple industry complaints about slow payers and tightening cash flows though one respondent in the agricultural sector said the seemingly small 10c/kgMS increase in Fonterra’s predicted payout has “done wonders for farmers’ psyches”.

Sheep and beef prices are good but margins are still short and “winter may turn up another curve ball”, another said.
Commercial construction is showing an improvement though construction overall indicates very competitive pricing and a tight market. “A lot of delays with projects going ahead due to clients trying to get more and more re-prices to get a lower price,” one respondent said.

Another said construction demand generally was still slowing “and despite government rhetoric on bringing forward capex spending on infrastructure, most government capex is being deferred.”

New home construction is still slow but ticking over quietly, said another. But yet another said in 22 years he’d never seen residential construction so bad. “[We’re] just backing the brand we’ve created and we’ll get by on much reduced turnover and profit.”

In the finance industry, the past two months have shown a significant increase in home lending levels and there has been much more general activity in the sector in the past six weeks, one respondent said.

“Banks are still very picky about deals but settlements are happening,” said another. “Business clients are still being penalised by fixed and floating rates much higher than residential ones. Winter will be tough, I believe.”

Said another: “Borrowers who have used their houses as credit cards are starting to run out of options as lenders press the mortgagee sale button.”

The legal industry says it is “generally busy both with financially distressed clients and with business sale and purchase transactions and restructures.” One Wellington law firm said its conveyancing and domestic violence work was rising.

In residential real estate, one respondent said sales were going well. “As soon as you list a property, a multiple offer scenario exists from keen buyers for properties up to $400k. Banks are lending ‘by the book’.”

“Correctly priced” properties, it seems, are selling quickly. Depending on who you listen to, the $1 million-plus market is either “almost dead” or “relatively unaffected by the economy”.

Retail respondents say sales are still weak, customers very careful with their money and recovery appears a long way away.

Education remains a strong sector, although there are worries about the future skill implications of apprentices being laid off.  Polytechs say they’re experiencing increasing interest and demand for up skill-type courses as redundancies continue.

The BNZ survey represents the views of more than 18,000 readers of Alexander’s Weekly Business Overview. He stresses the comments are the views of the survey respondents and not the BNZ. “We exclude comments which don’t say anything about current business conditions in an industry and are instead mainly rants and raves,” he says.  Comments in capital letters are also excluded.