Slide in confidence may be turning round

"The erosion in business confidence has been serious but the evidence of the latest National Bank survey is that the mood is turning around," Finance Minister Michael Cullen said today.

"The Bank split the responses into those received before and after 8 June. The result was a net 16-point rebound in confidence between 8 June and 19 June when the survey closed.

"The Bank attributes the turnaround to what the media likes to refer to as the
"Government's business charm offensive." The term is media-speak rather than government-speak, but I welcome the positive business reaction to the Government's renewed efforts to maintain a dialogue," Dr Cullen said.

"I would note that there is a lack of internal consistency in the survey responses, indicating that a good deal of the pessimism about the economy is commentator-led rather than reflecting individual company experience.

"For example, although a net 55 percent state that they expect general business conditions to deteriorate; only a net 4 percent expect their own business activity levels to slow; only 5 percent expect investment to decrease; 15 percent employment to decrease and 23 percent real profits to fall.

"In other words, the score on the worst of the specific indicators is only half as bad as the general pessimism expressed.

"There are further discrepancies between what are essentially measures of the same thing: 71 percent expect unemployment to increase but only 25 percent expect employment to fall; 4 percent expect business activity to drop but 11 percent expect capacity utilisation to rise," Dr Cullen said.

"The phenomenon is especially evident in the agricultural sector where a net 58 percent are negative about general business conditions while a net 27 percent expect their own level of activity to improve; 35 percent expect exports to rise; and 18 percent expect livestock numbers to grow.

"I would also point out that when those expecting no change are added into the mix, the percentage expecting their own business to stay the same or improve rises to 73 percent while 81 percent see investment as stable or rising.

"All these inconsistencies and the improvement in mood after June 8 suggest the pessimistic sentiment is not deep-rooted and is already beginning to turn around," Dr Cullen said.