“Today’s update on business conditions from the NZIER shows a recovery in confidence back to pre-pandemic averages,” said Westpac senior economist Satish Ranchhod.
“That’s consistent with comments we’ve heard from businesses that they are starting to feel a bit more optimistic about the outlook for the economy now that the RBNZ’s easing cycle is in train,” he said.
“However, of greater importance, the survey points to continued softness in economic activity through the middle part of the year.”
The survey suggested businesses were responding favourably to the withdrawal of monetary restriction, but that times were “still very tough here and now”, said ANZ senior economist Miles Workman.
Retail rebound
The improvement in sentiment was most evident in the retail sector, Leung said.
“Despite orders, sales and profitability remaining weak in the September quarter, a net 13% of retailers surveyed are feeling positive about the general economic outlook for the coming months. A net 8% of retailers are also expecting domestic demand to improve in the next quarter.”
A small proportion of the services sector was also feeling positive about the general economic outlook ahead.
In contrast, the manufacturing sector was the most downbeat, with a net 37% of the manufacturers surveyed feeling pessimistic about the general economic conditions over the coming months.
“This pessimism continues to be driven by the weak demand and profitability facing the manufacturing sector,” Leung said. “However, a significant proportion of manufacturers are expecting a recovery in demand in the coming quarter.”
The building sector was also downbeat, although to a much lesser extent compared to the June quarter.
There was a slight increase in the proportion of firms reporting higher costs in the September quarter, Leung said.
However, the pricing indicator showed that only a net 3% of firms were able to raise prices to pass on costs, which was a sharp fall from the net 23% in the previous quarter.
The reduction in pricing power was particularly evident in the building, manufacturing and retail sectors.
“The change in firms’ price-setting behaviour was highlighted by the RBNZ as a key factor providing them the comfort that inflation was easing enough to warrant them in commencing an easing cycle in the OCR,” Leung said.
“These developments suggest that the earlier interest rate increases are continuing to have their intended impact of dampening demand and reducing capacity pressures, which are driving a further easing in inflation pressures in the New Zealand economy.”
The easing in capacity pressures was particularly evident in the continued sharp turnaround in labour shortages, with significant proportions of firms now reporting it easy to find skilled and unskilled labour, she said.
Many firms also reduced their staff numbers in the September quarter.
“These results point to increased slack in the labour market. Given the labour market tends to lag broader economic activity, we forecast a further increase in the unemployment rate.”
The New Zealand Institute of Economic Research has conducted its Quarterly Survey of Business Opinion since 1961. Each quarter around 4300 firms are asked about whether business conditions will deteriorate, stay the same, or improve.
Yesterday, the monthly ANZ Business Outlook showed topline confidence in September rising to the highest levels since 2014.
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. To sign up for his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here.
