New Zealand business confidence stumbles
A bounce in business confidence after the election has proved short lived, replaced by the reality of a weak economy for the foreseeable future, the latest NZIER Quarterly Survey of Business Opinion shows.
Business confidence fell a net 24% in the March quarter, seasonally adjusted, with an expectation that economic conditions would deteriorate in the next few months.
That compared to a net 10% in the prior quarter who thought the economy would worsen.
The mood among firms remained downbeat as activity indicators deteriorated in the quarter, the survey found
Kiwibank chief economist Jarrod Kerr said businesses were still finding the economic environment a challenge.
The search for labour had improved markedly with rising net migration and was no longer the top constraint, Kerr said.
Cost pressures had eased, which was good news for inflation. “But demand is what’s top of mind for businesses. And they’re wary of the outlook,” Kerr said in a note.
“Amidst an environment of softening demand, firms are remaining cautious about investment and hiring.”
NZIER said there are enough economic indicators “still going the right way for the Reserve Bank to remain patient” on interest rate cuts.
“But at the same time these are yet to confirm that the battle against high inflation has been won.”
That reinforced the suggestion from the Reserve Bank’s February monetary policy statement that “the OCR needs to remain at a restrictive level for a sustained period of time”, NZIER said.
The number of people employed fell a net 11% and hiring intentions for the coming quarter dropped from 21% to 2%.
Labour as a limiting factor for businesses eased further from 16% to 11% below pre-pandemic levels. This suggested the labour costs were unlikely to stoke domestic inflation.
But the labour market would need to loosen further to give the Reserve Bank confidence there would be a sustained period of disinflation.
Fewer firms reported higher costs an increasing prices in the first quarter with price rises falling 2 points to 35%.
Meanwhile, pricing intentions fell to a net 33% and costs declined 7 points to a net 49% of firms reporting higher costs.
It’s probably a little too early to be making strong conclusions about what the quarterly ups and downs meant for activity and employment, NZIER said.
“But taken at face value, today’s indicators for activity, the labour market, capacity, and pricing are unlikely to move the dial much for the Reserve Bank’s monetary policy review today.
“There are enough economic indicators still going the right way for the Reserve Bank to remain patient.
“But at the same time, these are yet to confirm that the battle against high inflation has been won” and suggested the OCR will need to remain at restrictive levels for a sustained period of time.