Confidence slumps near GFC lows

Inflation forecasts at record, but some bright points amid gloom, say economists

The latest ANZ Business Outlook survey shows confidence slumped in November with falls in both the wider economic outlook and firms’ expectations for their own activity.

“The survey clearly indicates weaker activity ahead, which is what the RBNZ is trying to bring about in order to lower inflation pressure,” said ANZ chief economist Sharon Zollner.

“There are a lot of dark clouds on the horizon, and this month’s survey reflects that.”

Business confidence fell 14 points in November to -57, while expected own activity fell 11 points to -14, only 8 points shy of 2009 lows.

“Pricing intentions and cost expectations are falling — but the latter is barely off its highs, and pricing intentions are still far too high for the Reserve Bank to take comfort,” Zollner said.

“Inflation expectations hit a fresh record high, which will not provide the RBNZ with any comfort whatsoever.”

There were some positives with the outlook for where pricing will be in three months now just up 3.7 per cent — the lowest expectation this year.

“Expected cost increases eased for every sector except manufacturing and services, but outside of construction, it’s a stretch to say there’s a clear downward trend,” Zollner said.

On average, firms were still expecting margin compression, in that costs were expected to go up 6.1 per cent over the next three months, but their prices by only 3.7 per cent,

Cost increases remain relentless and margins are squeezed, firms are chronically understaffed, and they’re waiting for the hammer to fall as the impact of relentless monetary policy tightening eventually kicks in. Sharon Zollner, chief economist, ANZ

she said. “The strain is showing for Kiwi businesses.

“Cost increases remain relentless and margins are squeezed, firms are chronically understaffed, and they’re waiting for the hammer to fall as the impact of relentless monetary policy tightening eventually kicks in.”

By sector, an intention to raise prices is most widespread in the retail sector, with 80 per cent of firms intending to raise their prices in the next three months and manufacturing (69 per cent).

Construction sector pricing intentions dropped most dramatically, from 94 per cent in March to 44 per cent of firms this month.

“More generally, pricing intentions are continuing to ease, particularly gauged by firms’ numerical estimates of what they intend to do with their prices,” Zollner said.

“But they are still much too high. And inflation expectations jumped back up to a fresh record high, with retailers expecting inflation of 7 per cent. If everyone else is doing it, and customers are expecting it, then the fear of losing customers as a result of passing through cost increases is much reduced.

“The Reserve Bank is trying to bring that fear back by increasing consumers’ price sensitivity.”

With borrowing costs and inflation running close to multi-decade highs, businesses were bracing themselves for a slowdown in demand, said Westpac senior economist Satish Ranchhod.

“Notably, we’re already hearing many of those connected to the construction sector reporting a softening in orders.

“The gloom is setting in.” Businesses’ expectations for their own trading activity had only been this weak twice in the past two decades — first during the 2008/09 financial crisis, and then again during the initial Covid lockdown, Ranchhod noted.

Meanwhile, the result would have done nothing to ease the RBNZ’s nerves about the near-term inflation outlook, he said.

“Expectations for inflation over the year ahead have picked up again, rising to 6.4 per cent (from 6.1 per cent last month). That’s a large increase and leaves expectations at their highest level in more than two decades.”