The last ANZ Business Outlook of the year shows business owners are gloomier than ever.
Business owners are gloomier than ever heading into a new year, according to the latest ANZ Business Outlook survey.
“The RBNZ appears to have achieved shock value with its sharp increase in the OCR, hawkish forecasts and warning of deliberate recession in 2023. Many indicators are around Global Financial Crisis lows,” said senior economist Miles Workman.
“The fall in business confidence is certainly dramatic, but while it’s at a fresh record low, it would be incorrect to read this as an indication that any recession is likely to be unusually severe. Rather, it’s unusually widely anticipated.
“It’s a situation unprecedented in recent decades for a central bank to admit it is deliberately engineering a recession. Time will tell if the shock value snowballs or dissipates.”
In the monthly outlook survey, business confidence was down 13 points to a net figure of -70. Expected own activity fell from -14 to -26.
One of the key features of the survey was that activity measures weakened pretty much across the board, Workman said.
Inflation and pricing pressures also remained intense, but cost expectations moved marginally lower.
The decline in retail and manufacturing sentiment was particularly marked, but it was broad-based.
By sector, an intention to raise prices was most widespread in retail and services. The lowest proportion of businesses expecting a lift in prices was in agriculture.
“Expected cost growth remains very high across the board, particularly considering that the question asks where costs will be three months from now, not a year ahead. Construction is most clearly past its peak cost inflation, but manufacturing and retail are also going in the right direction,” Workman said.
On average, firms were expecting margin compression, in that costs were expected to go up around 5.9 per cent over the next three months, but prices by only 3.8 per cent.
“Wage growth is a must-watch, as a key driver of non-tradable inflation.,” Workman said.
Reported past wage settlements were steady at 6.7 per cent, with a large surge in the retail sector. Expectations for wage settlements for the next 12 months had lifted, led by agriculture and retail.
Only in construction expected wage settlements to be falling.
“Each three months we ask firms what their biggest problems are,” Workman said.
“Finding skilled labour remains the clear number 1, but has definitely eased. Interest rates jumped the most compared to the last read in September, but still rate well behind other costs.”
Westpac senior economist Satish Ranchhod noted the pessimism came “despite what have actually been some healthy economic conditions in recent months”.
“GDP growth was much stronger than expected in the September quarter, rising by a massive 2 per cent. There’s been improving conditions in our tourism sector. And retail spending has been holding up,” he said.
The combination of weakening business conditions, as well as the weakness in consumer confidence seen in the Westpac-McDermott Miller Consumer Confidence survey earlier this week, reinforced expectations for a downturn in economic activity over the coming year, he said.
ANZ also asks firms about what’s driving their investment intentions.
Among firms intending to invest more, skilled labour shortages and the domestic economic outlook were the key drivers, with spare capacity reducing as a factor.
Among firms intending to cut their investment, the biggest factor was the domestic economic outlook, but interest rates are increasing in importance.
“Let’s wrap up with some good news,” he said. “Shipping disruptions have clearly eased in recent months.”
Overall the Reserve Bank had achieved the shock value it was aiming for in its November Monetary Policy Statement, Workman said.
“Nothing like saying you’re deliberately engineering a recession to put a damper on investment and employment plans.”
But, less clear was whether the results of the survey corroborated or challenged the RBNZ’s expectation for a shallow recession next year, he said.
“It depends on whether the weak intentions and expectations persist, or whether the shock value dissipates and things normalise somewhat. And that will depend on whether firms see demand dry up as abruptly as they are expecting.
“We’ll be watching card spending, consumer confidence, the Truckometer indexes, consents and job ads to get a sense of how quickly momentum is shifting.
“For now, if the ANZBO weakness is sustained, the RBNZ is in danger of engineering a harder landing than intended, with downside risk to residential investment, business investment and overall GDP,” he warned.
“The ANZBO indicators for consumption, employment and inflation are consistent with RBNZ forecasts. But it all comes down to where things sit when the dust settles.”