Business confidence improves, retailers most downbeat
Results of the latest NZIER Quarterly Survey of Business Opinion should kill off any talk of another OCR hike, says BNZ head of research Stephen Toplis.
The RBNZ would be satisfied with the results which provided “very strong evidence that inflationary pressures were abating”, he said.
“In terms of monetary policy settings, today’s data fit very well with our view that there is next to no chance of a rate hike in the foreseeable future barring any shocks. We continue to believe the next move in interest rates will be down and that this will possibly occur sooner than the RBNZ expects.”
Retailers were the most downbeat in the latest NZIER’s survey, despite overall confidence slightly improving.
The June quarter survey showed a net 59 per cent of businesses expected deterioration in general economic conditions over the coming months (on a seasonally adjusted basis). The lift was off historically low levels, said NZIER principal economist Christina Leung.
In the March quarter, a net 61 per cent of businesses had expected a deterioration. In the December quarter a record 73 per cent were negative, the weakest in the survey’s history.
Despite that gradual improvement, firms’ own trading activity remained subdued, with a net 13 per cent reporting reduced activity in the June quarter on a seasonally adjusted basis. An increased proportion of businesses expected their own activity to decline in the next quarter.
“There was better news for those looking for signs that inflation may be easing,” Leung said. “While demand continues to soften, the marked decline in capacity utilisation amongst builders and manufacturers and the proportion of firms reporting difficulty in finding labour, especially unskilled labour, point to a considerable easing in capacity pressures in the New Zealand economy.”
Cost pressures for firms remained intense over the June quarter and the proportion of firms which increased their prices remained roughly the same.
But with a weaker outlook for demand, a smaller proportion of firms expect to increase their prices in the next quarter.
“This suggests that the weakening demand is having some impact on inflation pressures, as it limits the extent to which firms can increase prices,” Leung said.
The retail sector was the most downbeat in the June quarter, with a net 64 per cent of retailers surveyed expecting a worsening in the general economic outlook.
“While cost and price pressures are falling, this environment of weaker demand is weighing on the sentiment of retailers. With around half of mortgages due for repricing over the coming year, we expect a further slowing in retail spending as the significant increase in mortgage repayments crowds out discretionary spending.”
Manufacturing and services sectors were also feeling downbeat. Cost pressures increased for both sectors, which weighed on their profitability. “The weaker demand in the services sector was also weighing on the sentiment of services sector firms,” Leung said.
Confidence in the building sector had improved in the June quarter, although from a low level.
Westpac senior economist Satish Ranchhod also noted that cost pressures in most sectors were still strong, but they have been easing back. “Putting this all together, we’re left with a picture of softening activity and a gradual easing in inflation pressures, albeit from quite high levels.
“The Reserve Bank will be encouraged by the direction of these indicators, but it remains to be seen whether they are adjusting fast enough to bring inflation all the way back to the target range.”
ASB senior economist Nathaniel Keall took a more cautious view saying: “It is still too early for the RBNZ to declare victory just yet, and interest rates will remain high for some time to come.”