Dairy Scary

Although the New Zealand economy recorded solid growth in the latter half of 2015 on the shoulders of strong population growth, the outlook over the coming year is decidedly mixed. This was underscored last week by the quarterly NZIER Business Opinion survey which suggested firms are becoming more concerned about the impact of the dairy downturn beyond the agricultural sector. However, the survey did not signal any change to the inflation backdrop, as firms continue to struggle to see opportunities to lift prices.

The Quarterly Survey of Business Opinion offers one of the most timely and comprehensive reads on the New Zealand economy. So it is worth taking a close look at some of the details in the March survey.

The survey showed business confidence fell in the March quarter, descending well below the average of the last few years. On its own this result was not too surprising – other confidence measures have also tracked lower in the first few months of this year. But dig beneath the headlines, and it is not hard to find evidence that firms expect the conditions they face to become decidedly more challenging this year.

When asked about how their own firm’s trading activity had fared over the last three months, businesses reported little change in activity relative to December. This was a bit more upbeat than we expected, and warranted a small upgrade of our Q1 GDP growth forecast to 0.6%.

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