ANZ chief economist says business conditions are looking brighter. Photo / 123RF
ANZ chief economist says business conditions are looking brighter. Photo / 123RF
Business confidence eased one point to +65 in November, but expected own activity rose two points to +48, according to the latest ANZ Business Outlook survey.
“The economy is clearly still very weak, but things are starting to turn higher,” said ANZ chief economist Sharon Zollner, in a note headlined:“brightening”.
“Forward-looking activity indicators were generally a little higher, with another lift in reported past activity and employment. The latter are [mostly] still negative across the various sectors, but the tide has turned,” she said.
Experienced own activity rose a point to -10, while past employment lifted from -15 to -12.
The November survey showed the lift in activity expectations and the improvement in experienced activity were persisting, suggesting that interest rate cuts were changing actual behaviour, not just expectations, Zollner said.
“Given where the economy has been, and the lag from activity to inflation pressures, the [Reserve Bank of New Zealand] will be confident there is sufficient domestic disinflation pressure in the pipeline, even if growth were to rebound faster than they are anticipating.”
But the survey did “pour cold water” on the idea of large emergency cuts being necessary to scrape the economy off the floor.
“There is real pain out there – and both unemployment and business failures are likely to continue to increase for some time. But those two measures tell you where the economy has been, not where it’s going. Firms are saying that things are looking brighter.”
In good news for the Reserve Bank, inflation expectations dropped markedly, likely impacted by the third-quarter consumer price inflation figure of 2.2%. Pricing intentions also fell as did the average amount by which they intend to raise them, Zollner said.
Cost expectations over the next three months eased slightly. Both cost expectations and pricing intentions remained above pre-Covid levels but were trending in the right direction.
ANZ chief economist Sharon Zollner says inflation needs to drop soon if we want to avoid more Reserve Bank interest rate rises. Photo / File
Firms’ numerical estimates of their own costs over the next three months eased from 2.3% to 2.0%, falling for every sector except retail.
“Business inflation expectations have fallen much more quickly than those of consumers,” Zollner said.
“Not only are inflation expectations falling – firms [like the RBNZ itself] are also becoming more certain about their expectations. That will help cement price-setting behaviour that’s consistent with inflation at target.”
“The RBNZ recently made an assumption that firms would essentially move on from the Covid era more quickly than previously modelled, and this data at the margin supports that notion.“
Reported wage increases versus a year earlier fell from 3% to 2.7% in aggregate and were lower for every sector except agriculture.
Expectations for firms’ own wage increases over the next 12 months were stable at 2.6%. Those expectations have been extremely stable in the past six months at levels consistent with CPI inflation at target, Zollner said.
“One final interesting observation: reported expected ease of credit is at pretty much a record high. Credit conditions are, by this measure at least, not going to be a significant constraint on the economic recovery.”
Westpac senior economist Michael Gordon noted that confidence was stronger this month in the agriculture, retailing and services sectors.
This was partly offset by a drop in construction and manufacturing, though the latter was coming off a sharp rise in October, he said.
“We’re forecasting a 0.2% fall in GDP for the September quarter, followed by a modest 0.3% increase in the December quarter,” he said.
“The RBNZ’s forecasts in yesterday’s Monetary Policy Statement were identical to ours. While the business confidence survey has certainly been more ebullient than other high-frequency indicators, it generally supports our view of a return to modest growth in the economy.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
