Recent economic indicators in New Zealand have continued to strike a note of cautious optimism.
The June Quarterly Survey of Business Opinion showed that business sentiment has improved since the dark days of March, with general business conditions rising from a net -65% in March to -25% in June. As with the ‘green shoots’ that have been emerging in the global and domestic economies, the claim is a fairly modest one: activity in the June quarter appears to have fallen at a slower pace.
But the momentum is clearly turning.
Firms’ own-activity expectations rose from a net -36% to -10% in seasonally adjusted terms. This series is a useful indicator for contemporaneous GDP, although the relationship has been strained in recent quarters, with the survey at face value suggesting much larger falls in GDP than the actual outturns. This may be because the survey excludes two sectors that have been major contributors to growth during the recession: agriculture and government.
Given our current forecasts for those two sectors, the survey is consistent with a GDP outturn of -0.4% in Q2, a slower pace of decline than the -1.0% recorded in each of the previous two quarters.
In a similar vein, the key activity indicators in the survey improved markedly from March but remained in negative territory. Employment and investment intentions rose from record lows in March, though they remained at levels consistent with past recessions, while expected profitability rose from a net -45% to -24%. It’s worth noting that as weak as actual profits were in the June quarter, they were slightly better than what was anticipated back in March – a relatively rare occurrence in the last two decades, perhaps highlighting the fear factor that pervaded the survey in Q1.
