Business confidence has dropped sharply across New Zealand, with a growing number of businesses feeling pessimistic in the face of rising labour costs and slow progress on housing and infrastructure projects. According to the ANZ Business Outlook Survey, 27 percent of 354 firms surveyed expect general business conditions to deteriorate over the coming 12 months, an increase from 23 percent the month before. The situation is especially pronounced in Auckland, with the Auckland Chamber of Commerce recently saying business confidence in the city was in "free fall".

While New Zealand's headline economic indicators have supported the idea of robust economic growth recently, companies are known to get more pessimistic about the economy when a Labour administration is in place. According to ANZ Bank New Zealand chief economist Sharon Zollner, "The survey made for fairly uninspiring reading this month, with all aggregate activity indicators flat to falling... The economy still has good tailwinds in the form of fiscal stimulus and the record-high terms of trade, but may be tiring nonetheless."

You may be surprised by such pessimism, with strong net migration continuing to fuel residential investment in housing and the Organisation for Economic Cooperative and Development even coming out in anticipation of solid growth. However, while migration numbers are helping to bolster consumer spending and the expanding workforce is mostly being absorbed by business, the Labour Coalition government has not done much over recent months to gain the confidence of the business community.

The ANZ Business Outlook Survey highlighted these growing problems, with New Zealand businesses uncertain about potential changes to the employment market, taxation policies, and immigration policies just to name a few. Other factors influencing the pessimistic outlook included weak wages growth, flat consumer prices, poor per capita economic growth, housing market uncertainty, and a lack of infrastructure spending to meet the needs of the growing population.

Companies are also increasingly concerned about earnings, with 8.5 percent of respondents expecting profits to fall in the coming year, compared to just 0.9 percent in April. Just 3.2 percent of businesses are intending to increase investment over the next year, down from 7.2 percent the month before.

Unsurprisingly, this means that hiring intentions also declined, with 6.9 percent of respondents planning to take on new staff compared to 8.9 percent in April. Agriculture was the most pessimistic sector in the ANZ survey, followed by manufacturing and retail.

According to Auckland Chamber of Commerce boss Michael Barnett, New Zealand's biggest city is in a particularly bad place. The chamber recently surveyed 800 businesses, with a massive 44 percent expecting the economy to deteriorate over the rest of the year and just 15 percent feeling optimistic.

Growing uncertainty over the Government's economic direction was the main reason behind the slump in business confidence, with survey respondents also concerned about the skills shortage, fuel tax, and increasing cost of labour.

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