Last week, two separate confidence surveys reconfirmed our view that a dichotomy has emerged between the weak agriculture sector, in particular dairy, and the strong services and construction sectors.
The March ANZ Business Outlook showed that a net 46% of agriculture businesses were pessimistic about the future, by far and away the worst across the five sectors evaluated. Business confidence was much higher in construction (a net 21% were optimistic) and services (net 16% optimistic) while views in retail and manufacturing largely balanced pessimists and optimists. The dire view of the agriculture sector and weak views in retail and manufacturing pulled the overall result down; 3.2% of businesses felt optimistic about the outlook overall.
These trends are flowing clearly through from the national economy to its constituent regions. The exposure of different regions to dairy, construction activity and the service sector is having a strong impact on economic outlook, as highlighted by the Westpac McDermott Miller Regional Economic Confidence survey released on 30 March. Regions with large numbers of dairy farms are decidedly less optimistic than those with other strings to their bow.
Southland, where workers are almost four times more likely to work in dairy than in New Zealand as a whole, had a net pessimistic majority of 38%. Taranaki, Whanganui and the Manawatu were almost as downbeat, with a net 31% believing the outlook was for things to worsen. The Waikato, which has the largest dairy sector in the country, saw pessimists outnumber optimists by a net 18 percentage points even though the region’s construction and tourism sectors are doing well.
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