Gloom in construction sector as business confidence slides

Businesses remain pessimistic about their future after a sharp fall in trading activity over the June quarter.

The Institute of Economic Research's latest quarterly survey of business opinion showed a net third are reporting a decline in trade since March.

Companies are bracing for the economic situation to get worse over the coming months, as a quarter expected to cut staff, with weaker trade activity.

More then a third of businesses said they would reduce investment over the next quarter.

The institute's principal economist, Christina Leung, said the result wasn't all that surprising given the country spent April and part of May in alert levels 4 and 3.

"In the March quarter we saw a sharp decline in business confidence to the extent that for the June quarter we've seen some slight improvement.

"That's pretty encouraging, it does suggest some stabilisation in terms of confidence."

Leung said businesses tended to hold back on investment in an election year, but there was heightened caution due to long-term uncertainty about the financial impact of Covid-19.

She expected a rebound in trade activity in the coming months but said the appetite among businesses to invest was likely to remain weak.

The survey found the construction sector to be the most downbeat, with a net 75 percent of building firms expecting a deterioration of economic activity over the coming months.

The gloomy outlook was reflected by architects, who have reported a decline in commercial construction projects coming through their offices over the next year.

Leung said commercial construction had been facing headwinds even prior to the Covid-19 outbreak in New Zealand as banks tightened up lending to the sector.

"With this caution amongst banks in lending in these areas and coupled with businesses being more cautious about investing, that has really impacted on the pipeline of construction activity."