New Zealand business confidence dives


New Zealand's tourism sector faces the biggest challenge, according to a new business survey

By CNN's Geoff Hiscock

WELLINGTON, New Zealand (CNN) -- Business confidence in New Zealand dived sharply in the September quarter, a survey released Thursday shows.

Its key finding -- that a net 44 percent of businesses now expect conditions to worsen over the next six months -- follows similar surveys in Australia earlier in the week that warned of falls in consumer and business sentiment.

In the previous June quarter, a net 1 percent of New Zealand businesses had expected conditions to improve.

New Zealand's Institute of Economic Research said the fall in the September quarter was the largest since the country's June 1984 currency crisis and the fourth largest since two big falls during the 1973-74 oil shock.

It said the survey responses came in after the September 11 terror attacks in the United States.

Decline may be overstated

After removing seasonal variations, the institute said a net 28 percent of respondents expect business conditions to deteriorate, compared to a net 10 percent who expected business would improve in the June quarter.

The institute commented that while the attacks in the U.S. would have consequences for the New Zealand economy, "the magnitude of the decline in confidence seems overstated when compared to firms' expectations for their own performance".

The U.S. is New Zealand's second biggest export market after Australia.

The fall in confidence heightens expectations that the Reserve Bank of New Zealand will cut interest rates next month. The bank last cut by half a percentage point on September 19.

It left its official cash rate unchanged at 5.25 percent last week, even though the U.S. Federal Reserve cut by 0.5 percentage points on October 2 and the Reserve Bank of Australia cut rates by 0.25 percentage points on October 3.

Economy holding up well so far

Despite the slowdown in global growth this year, New Zealand's economy had held up well in recent months on the strength of good commodity earnings and a cheap currency which was boosting tourism revenue.

But the institute said tourism was likely to be the sector most directly affected by the terror attacks.

"Lower aggregate tourism spending resulting from fewer overseas visitors will be partly offset by more New Zealanders staying home," it said.

New Zealand's economy grew 1.8 percent in the June quarter, over the previous quarter, and 2.8 percent year on year.

Across the Tasman in Australia, the National Australia Bank monthly business survey released on Tuesday showed a record fall in business confidence after the September 11 attacks.

The sectors hardest hit were tourism, financial services and wholesaling.

The NAB said its index of business confidence fell a record 26 points to minus 10, which was lower than the level seen during the 1997-98 Asian financial crisis.

Australian consumers, too, are becoming more wary. The Westpac-Melbourne Institute of consumer confidence released Wednesday showed a 9 percent drop, reversing what had largely been a positive trend over the previous six months.