The construction sector saw the biggest fall in costs expectations. Photo / file
The construction sector saw the biggest fall in costs expectations. Photo / file
Those hoping for clear economic direction from the latest ANZ Business Outlook will be disappointed, with conflicting messages indicating a delicate situation as we head into the new year.
Business confidence rose 4 points to +37 in January, while expected own activity fell 3 points to +26.
On the inflationside, expectations took another step lower although - at 4.3 per cent - they were still too high, said ANZ chief economist Sharon Zollner.
She described the results as a “mixed bag”.
Cost and price expectations were holding up, with a solid jump for the retail sector of firms expecting to raise their prices.
“Firms’ specific estimates of what they expect to do with their own selling prices in three months’ time has been going sideways for seven months. Notable moves this month included a lift for retail and a fall for construction,” Zollner said.
“Renewed shipping woes may be contributing to some extent: retailers’ reported inward freight disruption has lifted off its lows.”
That could be coincidence but was certainly not the full explanation. she said.
Meanwhile, the proportion of retailers expecting higher costs in the next 3 months rose from 72 per cent to 76 per cent in January. The size of retailers’ expected cost increases eased slightly but remained higher than in November.
“Overall, expected cost rises are still higher than expected price rises, so firms are certainly not expecting to be able to pad margins,” Zollner said.
Expected cost growth was 3.4 per cent (unchanged) while expected price growth was 2.1 per cent.
“Most helpfully for the RBNZ, construction sector respondents now expect just 2.3 per cent cost inflation over the next three months, the lowest across the five sectors and a sharp fall from the peak of 7.8 per cent in mid-2022,” she said.
Reported wage increases versus a year earlier were flat but trending lower. Average expected wage settlements over the next 12 months fell slightly but appeared to be flattening out.
“The economy is at a delicate juncture,” Zollner said.
“We are forecasting a pretty good outcome compared to some scenarios: the RBNZ has done enough; it’ll take a while for that to be incontrovertible but by August they can commence a steady stream of OCR cuts.”
“Although the medicine has been bitter, it’s working. We just need those pricing intentions to start playing ball to steer clear of another dose of monetary tightening.”
Westpac economist Satish Ranchhod also notred that business sentiment had firmed.
“[The] survey still leaves us with a picture of limited momentum in economic activity and a gradual easing in inflation pressures,” he said.
“But while expectations for inflation are dropping back, around half of all businesses are still planning on raising prices over the coming months, including two-thirds of all retailers.”
While the market had completely ruled out any further rate hikes, there was enough in the data to suggest an outside chance the RBNZ could move again in February, Zollner said.
“There are definite signs of a stall in some of the leading inflation data, and the RBNZ may just decide they need to do more to be sure progress will continue, even at the risk of making a policy mistake.”
The cycle that ended in 2008 featured two pauses that were followed by a resumption of hiking, she noted.
