‘Autumn chill’ spreads through the business community
Businesses’ confidence in the economic outlook has fallen for the third month in a row, dipping to the lowest level since September, according to a monthly survey conducted by ANZ.
Confidence improved sharply after the October election and some economists were left scratching their heads in January when a survey by the New Zealand Institute of Economic Research showed even retailers broadly optimistic about the year ahead.
ANZ’s latest data suggests that bubble has now sagged, giving way to what the bank described as an “autumn chill”.
A net 15% of businesspeople polled by the bank believed that the economy would be in better shape in a year’s time, down eight percentage points over the month and a big decline from the recent peak in January when a net 37% were optimistic.
Businesses’ assessments of their own prospects showed a similar deterioration over the month and ANZ said the retail sector had now fallen “into the red” with plummeting profit expectations and a net 2% braced for a drop in their own business activity.
The fall in confidence comes amid public service job cuts and growing concerns that interest-rate cuts may be further off than economists had hoped a couple of months ago.
Doubts have been building in the wake of stubborn domestic price pressures, rising oil prices and a more uncertain mood among central banks overseas that the Reserve Bank will start to ease monetary policy this year.
Credit ratings agency Fitch warned last week that the outlook for interest rates was starting to diverge in different economies after an unusual period during the peakCovid era when it said the rate movements had appeared almost synchronised globally.
Reserve Bank chief economist Paul Conway made the same observation in December, in the context of arguing that there was no reason why it would necessarily follow the same track as the United States in lowering rates and that financial markets were being too influenced by sentiment overseas.
Eyes are currently on the Reserve Bank of Australia, which is due to review its 4.35% official cash rate next Tuesday.
While most economists believe it will leave its cash-rate unchanged, markets have begun pricing-in a significant chance that rates could be on the way up in Australia later this year.
ANZ’s survey showed businesses’ expectations of future inflation “inching lower” but with cost and wage pressures remaining very high, the bank said.
For the first time since July, more firms forecast they would shed staff than take on additional workers. The survey responses showed “a clear weakening in activity and profitability indicators”, ANZ economist Susan Kilsby said.
“The economy has indisputably weakened markedly in response to higher interest rates as the Covid-era excesses are unwound,” she said.