Economic Week - business confidence crashes

December 1, 2017      
by Nick Clark

The change in government has crashed business confidence according to ANZ’s Business Outlook Survey for November.

Overall, a net 39.3% of respondents expect the economy to worsen over the next 12 months, down 29 points on October and down a whopping 77 points on August when a net 38% were expecting the economy to improve.  For agriculture, sentiment is even more negative with a net 55.3% expecting it to worsen, down 32 points on October and down 78 points on August.

Own activity is historically a more accurate and a more level-headed indicator for economic growth but even its sentiment isn’t great, with confidence dropping to its lowest level since the Global Financial Crisis.  Overall, a net 6.5% of respondents expect their activity to increase over the next 12 months, down 16 points on October and down 32 points on August.  

For agriculture, own outlook is actually more positive with a net 21% expecting their activity to increase, up 3 points on October but down 19 points on August.  This is a little surprising given the recent drops in global dairy prices and the increasingly dry weather being experienced.

It’s no secret that many in the business community are not keen on Labour governments.  That confidence dropped in the wake of the change in government should not come as any surprise although the size of the drop might. The key to any ‘real’ economic impacts will be whether the slump, especially in own activity, is a temporary allergic reaction or is something more enduring and dampens investment and employment intentions. 

Interestingly and perhaps a little concernedly inflation expectations pushed up in November from 1.9% to 2.3%.  This is likely to be a reaction to the new government’s impending changes to the monetary policy framework.

Exports and Imports
Exports and imports were both up strongly in October according to Statistics NZ’s monthly Merchandise Trade Statistics.

Comparing October 2017 with October 2016, goods exports were up 16.2% to $4.6 billion and goods imports were up 15.0% to $5.4 billion, resulting in an $871 million deficit for the month.  October was a record month for imports, beating the previous record of $5.0 billion set in September 2014.

Exports of Milk powder, butter and cheese were up 21.9% to $1.3 billion, while meat exports also posted a healthy 20.1% increase to $378 million.  Wool also posted a 7.7% increase to $60 million.

For the year ended October 2017, goods exports were worth $51.8 billion, up 6.3% on the previous year while imports were worth $54.8, up 5.4%.  The goods trade deficit was almost $3 billion, slightly smaller than those for the previous two years which both exceeded $3 billion.

Exports of milk powder, butter and cheese were worth $13.3 billion for the year, up 20.5% on the one previous.  Meat exports were up 1.0% to $6.2 billion, while wool exports were down 24.5% to $503 million.

Dairy Stats
There were fewer dairy cows in the 2016/17 season but they were more productive, according to Dairy NZ’s National Dairy Statistics 2016/17, released this week.

The average dairy cow produced 4,259 litres of milk in the 2016-17 season, containing a total of 381kg of milksolids (kg MS), compared to 4,185 litres and 372kg MS in 2015-16.

There were 4.86 million dairy cows in 2016/17, down 2.6% on 2015/16’s 4.99 million, while herd numbers dropped 1.4% to 11,748.  The average herd size declined slightly from 419 to 414 cows.

Despite the decline in cows, dairy companies processed very similar milk volumes.  In the 2016/17 season 20.7 billion litres of milk were processed containing 1.85 billion kg MS. This is down slightly on the 2015/16’s 20.9 billion litres of milk containing 1.86 billion kg MS.

This is a great example of how the agricultural sector is maintaining its proud record for productivity which for thirty-plus years has been outshining that of the general economy (other examples include higher lambing percentages and heavier lambs and beef cattle). 

More productive farming is good for farm profitability, the economy, and the environment.

Agricultural Debt
Agricultural debt dropped slightly in October according to the Reserve Bank’s monthly Sector Credit Statistics.  Agricultural debt amounted to $60.6 billion, down $57 million on September but up $1.5 billion (or 2.5%) on October 2016.

Agriculture’s 2.5% annual growth rate remains considerably slower than for other sectors, with housing up 6.4%, personal consumer up 7.7%, and business up 5.9%.

Financial Stability
The Reserve Bank this week released its six-monthly Financial Stability Report.  Its decision to relax loan-to-value regulations for residential lending hogged the limelight, but it’s worth looking at what it said about agriculture, particularly dairy, which has been a big concern.

The Reserve Bank noted that global dairy prices have declined in recent months but remain well above their mid-2016 levels. It expects most dairy farms to be profitable in the 2017-18 season and it observed that banks’ non-performing loans to the dairy sector have declined.  It noted that banks have supported farms through the recent dairy price downturn.  This has helped limit loan defaults but has led to an increase in debt in the sector leaving some farms highly indebted. The Reserve Bank said banks should continue working with farmers to use improved cash flow positions to reduce debt levels in the sector over time.

Federated Farmers’ Banking Survey was undertaken in November and we hope to release the results next week.  Watch this space.

Exchange Rates

NZ Dollar versus

This Week (30/11/17)

Last Week (23/11/17)

Last Month (30/10/17)

Last Year (30/11/16)

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Trade Weighted Index





Source: Reserve Bank of NZ


Wholesale Interest Rates


This Week (30/11/17)

Last Week (23/11/17)

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Last Year (30/11/16)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ





Nick Clark

1 December 2017