Predictably business confidence has bounced in the wake of the Government rejection of the Capital Gains Tax - but not by much.

The latest ANZ Business Outlook Survey showed headline business confidence lifting six points and firms expectations of their own activity lifting two points.

The May survey showed a mere 32 per cent of respondents in the survey now expect general business conditions to deteriorate in the year ahead.

A net 9 per cent of respondents are expecting an improvement in their own activity.


Confidence in the economy remains at historically low levels - something which tends to be blamed on either Government policy or the political leanings of business owners, depending on your perspective.

But as ANZ chief economist Sharon Zollner points out, confidence is at least consistent with a slowing of domestic growth.

Whether the slowdown is a symptom of low confidence or the cause remains area of contention.

Regardless the negative sentiment around the possibility of capital gains tax has gone and that has seen a marked lift in mood for businesses in the manufacturing and retail sectors.

However did not cause a bounce in the residential construction sector - which seems to be facing more structural downward pressures.

"The main red flag in the survey is residential building intentions. These fell sharply yet again," Zollner said. "The signal is no longer isolated to this one data series – employment intentions in the construction sector also fell."

Other indicators were mixed.

A net 3 per cent of firms are expecting to lift investment, up 1 point. Profit expectations rose 3 points with just a net 10 per cent expecting profit to decline.


But a net 36 per cent of firms expect it to be tougher to get credit, down 1 point.

Firms' pricing intentions lifted 2 points with a net 50 per cent of firms also expecting
higher costs, led by agriculture.

Westpac senior economist Michael Gordon said that while the post-CGT bump was expected "it was by no means the only issue that businesses have had to grumble about."

"Other Government policies such as minimum wage increases, changes to employment law, and increased regulatory requirements are adding to firms' costs," he said. "While technology changes and international competition are crimping their ability to pass on cost increases."

The persistently weak business sentiment made the prospect of another Reserve Bank rate cut highly likely, said ASB economist Mark Smith.

Smith described the post-CGT lift as barely perceptible.

"The gain was less than we had expected," he said. "[The] survey continues to paint a picture of subdued growth of investment, employment and economic activity, declining firm profitability and muted inflation pressure."

Inflation expectations fell to 1.81 per cent, the lowest since early 2017.