July 7 (Bloomberg) -- New Zealand businesses are less pessimistic about the economic outlook and their earnings amid signs a recovery in the world’s largest economies will buoy exports and investment.
A net 25 percent of companies surveyed last quarter expect the economy will worsen over the next six months, the New Zealand Institute of Economic Research said today in Wellington. That compares with 65 percent that forecast a deterioration in the first quarter. The net is calculated by subtracting the pessimists from optimists.
“The recession is not over yet,” said Jean-Pierre de Raad, chief executive at the institute. “What we see is a general improvement in sentiment. It’s still negative.”
New Zealand may emerge from its worst recession in more than three decades by the end of the year amid signs of a recovery in global markets, Reserve Bank Governor Alan Bollard said last month. The central banker said he will keep borrowing costs at a record low until late 2010 to help stimulate spending and investment.
The economy contracted 1 percent in the three months ended March 31, the fifth straight contraction, according to a government report last month. Gross domestic product will also decline in the second and third quarter, de Raad said today.
The Organization for Economic Cooperation and Development last month raised its forecast for the economies of its 30 member nations for the first time in two years as the U.S. slump shows signs of easing.
Interest Rates
“There have been pieces of good news in Australia and China, which shows these markets are holding up for exporters,” said de Raad.
New Zealand’s economy has been contracting since the first quarter of last year as a global recession curbed exports and prompted companies to fire workers.
Bollard has reduced the benchmark official cash rate by 5.75 percentage points to 2.5 percent since July last year. He will leave the rate unchanged on July 30, according to all 12 economists surveyed by Bloomberg News.
New Zealand businesses reported a decline in sales in the second quarter and expect profits will fall in the third quarter, according to today’s survey.
A net 36 percent of companies said trading fell in the three months ended June 30. The net figure, which is seasonally adjusted, is calculated by subtracting those reporting an increase in activity from those seeing a drop.
Profit Outlook
A net 10 percent say trading will slow in the third quarter, down from 38 percent expecting a decline in the previous survey.
A net 44 percent say profits will decline and 23 percent of firms expect to invest less in plant and machinery.
Companies are firing workers as consumers rein in spending and as the global recession curbs demand for exports. A net 19 percent of companies expect to fire workers in the next year, today’s survey showed.
“Households have not yet felt the full impact of this recession,” said de Raad, who expects the jobless rate will reach 7.8 percent next year it current rate of 5 percent.
Firms have reduced capacity, working hours and fired staff, which suggests they may have to raise prices when demand picks up, the institute said.
Capacity utilization, a measure of factory usage, increased to 90.7 percent in the second quarter from 86.3 percent in the previous three months. That’s the largest jump in the history of the series.
“That would translate to some price pressures,” said de Raad. A net 7 percent of firms expect to raise prices in the next three months, the survey showed. A net 42 percent of firms said it is easier to find skilled workers, the highest reading in more than 30 years.
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