The retail sector was the most downbeat of the sectors surveyed. Photo / NZME
The retail sector was the most downbeat of the sectors surveyed. Photo / NZME
Business is starting to see some "light at the end of the tunnel" according to a new survey conducted by the New Zealand Institute of Economic Research.
The latest Quarterly Survey of Business Opinion (QSBO), released this morning, showed sentiment improving.
"Businesses are still feeling downbeat in the September quarter,but they are also starting to see the light at the end of the tunnel," said NZIER principal economist Christina Leung.
On a seasonally adjusted basis, a net 42 per cent of businesses surveyed expect deterioration in general economic conditions over the coming months – a considerable decrease from the 62 per cent in the June quarter.
Regarding demand in firms' own business, a net 3 per cent reported an increase in their own trading activity over the September quarter.
Capacity utilisation for builders and manufacturers eased slightly in the September quarter, albeit still sitting at historically high levels.
Capacity pressures remained particularly acute for the building sector and amongst exporters.
Labour remained the top primary constraint for businesses. The proportion reporting that finding workers was their primary business constraint increased from 37 per cent to 43 per cent.
However, shortages for both skilled and unskilled labour are easing from the historically high levels of the past year.
"This suggests wage growth is likely to ease over the coming year, as the reopening of international borders allows more firms to employ workers from overseas," Leung said.
The retail sector was the most downbeat of the sectors surveyed.
A net 61 per cent of retailers expect a worsening in general economic conditions over the coming months.
Both demand and staff numbers have reduced. The sector still faces intense cost pressures, with 95 per cent of retailers experiencing higher costs in the September quarter. Meanwhile, only 70 per cent were able to increase their prices.
Previously the most downbeat part of the economy, the services sector saw an improvement in its sentiment.
Nonetheless, a net 37 per cent of services sector firms expect worsening general economic conditions and profitability in the sector to deteriorate, Leung said.
Christina Leung is a principal economist with the New Zealand Institute of Economic Research. Photo / Mike Scott
Services activity has picked up, with international tourists boosting demand for hospitality and accommodation as international borders have reopened.
The decline in Covid-19 infections also reduced disruptions to services activity.
Sentiment in the building sector was also improving, but a net 57 per cent of the firms surveyed still expected a deterioration in general economic conditions.
"These developments are flowing through to moderation in inflation pressures," Leung said.
In the September quarter, the proportions of businesses reporting higher costs and raising prices both fell.
"Although the economic outlook is highly uncertain, these results support our view that annual CPI inflation will ease over the coming year," she said.
Businesses were still cautious about investing in buildings and plants and machinery for the coming year, with a net 17 per cent and a net 2 per cent intending to reduce investment in these areas, respectively.
This was the second major business confidence survey in the past week to show a small improvement in sentiment.
On Thursday the ANZ Business Outlook also showed a lift in confidence - also from a low base.
ANZ senior economist Miles Workman noted similar themes in the surveys but said he saw little to ease concerns for the Reserve Bank.
"Businesses are very downbeat, but a little less so than in [the second quarter]; activity indicators are weak, but some are also a little better than last quarter," he said.
But cost and pricing intentions remained far too high, with capacity constraints acute and labour as a limiting factor "maintaining its 1970s vibe".
"Fair to say, the signals on capacity and inflation pressures are most important for the RBNZ right now, and these data should still be making them very uneasy," he said.
"Capacity constraints easing at a snail's pace isn't enough to get core inflation back to an acceptable level in an appropriate time frame," Workman said.
The RBNZ is widely expected to lift the Official Cash Rate by 50 basis points to 3.5 per cent tomorrow.
Signs of a cooling in the economy were starting to emerge in the survey, said Westpac senior economist Satish Ranchhod.
However, the economy was still running hot and the labour market remained tightly stretched.
"At the same time, we're yet to see any material easing in inflation pressures," he said.
"Against that backdrop, the RBNZ is set to maintain a hawkish stance."
