Business confidence surges
Business confidence has leapt into positive territory, as more businesses expect better times than a deterioration, according to an ANZ survey.
ANZ said its December Business Outlook survey showed ‘‘headline’’ business confidence leaping 16 percentage points and a net 9 per cent of firms were optimistic about the economy over the year ahead.
A net 22 per cent of firms were upbeat rather than downbeat about their own prospects – the highest figure since March 2018.
Chief economist Sharon Zollner said businesses appeared to be full of Christmas cheer.
But the flipside was that the ‘‘common assumption’’ that mortgage rates would remain rockbottom for many years to come could be in question if inflationary pressures continued to rise, she said.
The survey indicated a net 35 per cent of firms intended to raise their prices, with supply disruptions a possible factor.
The survey comes after a day after Statistics NZ reported a 14 per cent jump in GDP in the September quarter and revised down its calculation of how much the economy shrank in the previous six months.
‘‘We should celebrate the fact that our economy is going to come out of 2020 in far better shape, cyclically and structurally, than most,’’ Zollner said. ‘‘We pulled together, stayed apart, eliminated Covid-19 twice and reaped the economic and broader wellbeing rewards.’’
Zollner acknowledged that behind the numbers lay some real stresses and strains, both in ‘‘overheated’’ sectors such as construction and ‘‘chilled ones’’ like tourism.
She also expected a ‘‘technical recession’’ in the final quarter of 2020 and the first quarter of 2021 as activity fell back a bit from its third-quarter bounce.
ANZ reported earlier yesterday that consumers were expecting house prices to rise 6.7 per cent in the year ahead and that their confidence in the economic outlook had climbed back to a near-average level.
The bank’s ANZ-Roy Morgan Consumer Confidence Index lifted 5 points in December to 112, edging closer to its historical average of around 120 points.
Expectations of higher house prices were the strongest since ANZ began measuring them in 2010, the bank said.
The Reserve Bank has assumed that rising house prices help lift consumer confidence. But Zollner said she believed the link between the two was weakening because of falling home ownership rates, even though they did move in the same direction in its latest survey.
When compared to several years ago, ‘‘a larger proportion of people are worse off, rather than better off, when house prices go up’’, she said. The price expectations reported in the survey tended to reflect what people had read about the housing market, so tended to lag actual price changes rather than be a good predictor of them.
‘‘But they do tell you that rising house prices have been noticed.’’
Consumers’ expectations of inflation in the year ahead eased 0.4 percentage points but remained remarkably high at 4.3 per cent, she said. Most people did not know what the rate of inflation was and normally forecast numbers that were too high, she said.
But it was still interesting that people perceived there was a lot of inflation out there and ‘‘where there is smoke there is fire’’, she said.
‘‘In the New Zealand context, where Covid-19 was brought under control quickly and fiscal policy filled the income hole, the hit to the supply of goods is proving a lot more persistent than the interruption to demand.
‘‘Inflation therefore bears watching as it holds the key to future interest rates.’’
The Reserve Bank wouldn’t tighten monetary policy in response to ‘‘temporary supply-driven inflation’’, but at the margins it did reduce the odds of further cuts in the Official Cash Rate.