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8/10/2018 — General
Otago feels business confidence pinch
By Simon Hartley

Otago businesses are reflecting the national downturn in confidence reported in numerous other surveys, especially from upward wage pressure and also staff shortages.

While wages are reportedly going up for Otago staff, that benefit may be countered by rising fuel and transport costs and an increase in imported goods' costs, because of the weakening New Zealand dollar against many trading currencies.

The Otago Chamber of Commerce quarterly business confidence survey, to October, showed expectations that the general business situation for the country would deteriorate over the next sixth months, up from 36.8% the previous quarter to 40%.

While Otago and Southland have in recent weeks featured strongly in regional and household surveys, it continues to be the business confidence surveys which dog the Coalition Government, especially around proposed policy changes, including employment law.

Chamber chief executive Dougal McGowan said the Otago survey tied in with last week's NZIER quarterly survey, which saw business confidence levels at their lowest since 2009.

Businesses were cited by NZIER as concerned most with Government policy, labour costs, consumer confidence and staff shortages. McGowan said the key aspect to Otago businesses expectations of deterioration was a decline in perception that profitability would be down.

This was prompted by increasing labour costs from wage rises, which in several grouping was up for the quarter.

“What we are seeing here is the effects of wage inflation,” he said.

The number of small to medium businesses expecting to give a wage increase in the coming year of between 1%-2% rose from almost 30% to almost 40%, but with more businesses less likely to offer an increase in the 3%-5% band. More than 60% of respondents attributed staff costs as having the largest effect on profitability in the past six months, while expectations for the year ahead eased off to below 60%.

However, McGowan said fuel costs are next largest concern for businesses, rising from about 25% to more than 30%.

“The latest fuel cost rises (last week) were too late to include, but show just how businesses expect to be effected,” he said.

It would affect the supply chain in both incoming goods and also outgoing finished products, as transport costs rose alongside fuel prices.

“That transport cost can be expected to be passed onto the consumer,” he said.

While he agreed rising wages bode well for consumers, he believed that income, and increased spending power, would be overshadowed by rising fuel and transport costs.

“With the (NZ) dollar being steadily pushed down, that will mean all imported goods will come at a higher cost,” he said.

For almost 26% of respondents, rising fuel costs were cited as the biggest effect on their profitability during the past six months.

On the question of hiring skilled or specialist staff, 47.2% of respondents were finding it more difficult than three months ago, and 38% said it was unchanged from three months ago.

Interest rate charges were also of concern, and while 54.3% expect them to stay unchanged, McGowan noted 40.3% expected rates to go up.

*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.

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