Economic Week - January 19
by Nick Clark
Business Confidence Slips - Again
Business confidence has sounded another bum note, according to
NZIER’s latest Quarterly Survey of Business Opinion (QSBO).
In December 2017 a net 11% of respondents expected the economy to worsen over the first half of 2018, down 16 points on the September quarter when a net 5% expected improvement. The September quarter was also down compared to the June quarter, thanks to election uncertainty, and December’s QSBO was the first since the formation of the new government.
There was a smaller decline in businesses’ own demand. A net 10% of businesses reported a lift in own trading activity in the December quarter, down 3 points on September. Own-activity expectations for the next three months also slowed, down 8 points to a net 18% expecting improvement.
The QSBO’s results were broadly consistent with other business confidence surveys and so came as no surprise. Previous QSBO’s have recorded falls in confidence after Labour has taken office, in contrast to lifts in confidence when National has taken office, but the effect on actual activity has generally been more muted.
Businesses may be worried about the outlook for economy under the new government, but for now this is not reflected in demand in their own business. Some commentators have accused the business community of over-reacting and ignoring what are still good economic fundamentals. There may be some truth to this but the Government shouldn’t ignore or write-off the reaction. It should work to build trust and confidence, otherwise if the negativity persists investment, employment and economic growth will suffer.
Farm Confidence Survey
The QSBO does not survey farmers. This gap is filled by Federated Farmers’ six-monthly
Farm Confidence Survey which is currently open for responses. Will this survey continue the run of pessimistic confidence surveys or will farmers be looking to put 2017 behind them and enter 2018 more optimistically?
The survey will also be very useful for getting a handle on the issues of concern for farmers and what they think the new Government should be focusing on. Let us know by Monday what you think and go into the draw to win an Air New Zealand Mystery Weekend! Expect to see the results in mid-February.
Food Prices Down in December
Food prices slipped 0.8% in the month of December 2017 according to Statistics NZ’s Food Price Index.
Fruit and vegetable prices slipped 1.7% for the month; meat, fish & poultry prices edged down 0.4% (beef & veal down 0.2% but lamb, mutton & hogget up 0.6%); and grocery food prices were down 1.3% (bread & cereals down 1.8% and milk, cheese & eggs up 0.1%). Butter prices dropped 4.9% in the month, no surprise given the drops in international butter prices since October.
For the year ended December 2017, food prices were up 2.3%, the same annual increase as November’s. Fruit and vegetable prices were up 4.5%; meat, fish & poultry prices were up 0.9% (beef & veal down 1.8% but lamb, mutton & hogget up 17.1%); and grocery food prices were up 2.0% (bread & cereals down 1.1% and milk, cheese & eggs up 4.1%).
Also Down in December – Commodity Prices
The
ANZ Commodity Price Index dropped 2.2% in December 2017, the third consecutive monthly fall. Dairy led the decline, shedding 5.6%, but non-dairy also fell by 0.4%. Meat and fibre prices were down 1.8% overall but beef prices were down 4.8% and wool prices were down 5.6%, lamb prices were the exception, increasing 1.9%.
The exchange rate often works to offset commodity price movements but it didn’t in December. Instead of falling the NZ Dollar appreciated 0.6% against the Trade Weighted Index and this resulted in the NZ Dollar Index slipping 3.0% for the month.
Although commodity prices fell towards the end of 2017 they were still ahead on an annual basis. Comparing December 2017 with December 2016, the World Commodity Price Index was up 3.0% and the NZ Dollar Index was up 6.4%.
GDT Up
Although commodity prices ended 2017 on a bit of downer, January has started better with dairy prices pushing up in the first two
GlobalDairyTrade auctions for the year.
This week the GDT Price Index was up 4.9% with all five commodities on offer increasing in price. Whole milk powder, by far the biggest product by volume, was up 5.1% and skim milk powder, the next biggest, was up 6.5%. The average winning price was $US3,310 and 23,319 tonnes were sold.
Despite the two recent increases, the GDT Price Index is still 3.7% lower than the same time last year.
Lower forecasts for New Zealand milk production and Fonterra putting less product on the auction were likely factors behind the GDT’s recent rises. However, global milk production is continuing to increase, especially in Europe, and this growth could limit the potential for further large price increases.
Soil Moisture Data
The latest NIWA soil moisture data
NIWA soil moisture data as at 18 January shows the effect of recent rain, including in a number of areas where drought was declared in December (Taranaki and western parts of Manawatu-Wanganui and Wellington regions) and in January (Buller and Grey districts). Although not yet in drought Otago-Southland remains not only dry but drier than usual.