Economic Note (New Zealand)
NZ: Quarterly Survey of Business Opinion - Sept quarter 1999
The survey, which was conducted during the second half of September, recorded a fall in business confidence from +30 to
+18 (net respondents). That was a further correction from the overshoot at the beginning of the year and remains
consistent with 3% growth over the next 6-9 months.
All QSBO indicators for the September quarter point to a bounce-back in GDP over that period, following the negative
June quarter growth performance. Indicators include responses to questions about actual output and sales performance
over the past three months.
The merchants sector reported a slight downturn in performance (which is inconsistent with buoyant actual retail sales
data), while the manufacturing sector appears to have strengthened significantly, due to both stronger domestic and
The manufacturing sector performance is also reflected in a further rise in capacity utilisation, which has reached the
highest level since Q1/97 and contradicts the view that the NZ output gap has widened as a result of the mid- year GDP
Consistent with the strengthening economy, the share of respondents reporting price increases has risen sharply, while
skill shortages have worsened.
With respect to expectations for the next 6-12 months, the survey showed:
particularly strong manufacturing sector output
expectations (despite a weaker contribution from
exports), combined with a relatively stable profile
for merchants and the building sector; a modest further rise in investment intentions,
with respect to both plant/machinery and buildings; a continued upward trend in the labour market;
a modest further rise in profitability expectations;
rising cost pressures; and increasing intentions to raise prices.
The QSBO data suggests that September quarter GDP will bounce back strongly. According to indicator relationships, our
current expectation of +1.1% qoq may even look too conservative. There is the potential for a very strong manufacturing
sector result for the September quarter.
>From the RBNZ's perspective, the most important piece of information may be the further rise in capacity
utilisation. The filter approach used by the RBNZ to estimate NZ's output gap has proven to be inadequate, which has led
the Bank to put more weight on alternative measures, like capacity utilisation and the rate of unemployment. The latest
observation suggests that the economy is close to or even at full capacity, which is inconsistent with the assumption
underlying the RBNZ's August forecast that the domestic output gap will not close for another year. The chart above
suggests a similar overestimation of spare capacity by the output gap measure following the previous recession in 1991.
Overall, the latest QSBO suggests a rapid GDP recovery, tightening capacity utilisation, as well as a sharp rise in
intended price increases. That provides the RBNZ with another piece of evidence to support its intended 50 bps cash rate
rise on 17 November.
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