Sharon Zollner: 'Finding skilled labour continues to be the largest issue for firms.' Photo / File
Sharon Zollner: 'Finding skilled labour continues to be the largest issue for firms.' Photo / File
Business confidence jumped 13 points this month, to hit its highest level since November 2021, according to the ANZ Business Outlook.
It showed a broad lift across sectors, from historically low levels, but remained in negative territory (net -18).
Firms’ expectations for their own activity rose 8 points to positiveterritory (net +3).
“Times remain very uncertain for businesses, and pressure on profitability from high costs and in some cases, lower turnover, persists. But there are positives too – firms appear to have taken heart from the RBNZ calling a halt to hikes,” said ANZ chief economist Sharon Zollner.
Increasingly widespread expectations that the housing market has found a floor appeared to offer “glimmers of hope” for the residential construction sector, she said.
Finding labour had clearly become easier as the number of migrant workers arriving surged, alleviating a significant source of stress for businesses.
“Of course, capping any upside is the fact the RBNZ is wanting to see subdued demand for a period,” she said.
“But for now, cautious optimism appears to be emerging that the worst could be [in the] past – but it’s conditional on those inflation indicators continuing to fall.”
Headline inflation and pricing indicators continued to ease. Inflation expectations had the steepest downward trend but were still extremely elevated.
The fall in the net proportion of firms expecting higher costs was particularly marked, Zollner said.
Firms’ views of their own selling prices in three months’ time were slightly lower versus last month (at 2.8 per cent).
“Encouragingly, a general downtrend continues to be evident in firms’ expected costs in three months’ time relative to today. The data imply that on average, firms continue to expect margin compression, given costs are expected to lift more than prices,” she said.
“Reported past wage settlements ticked slightly lower with an increase in the services sector offset by falls elsewhere and continue to trend lower in a broad-based fashion.”
Wage growth is a key driver of the persistence of non-tradable inflation.
“Overall, firms are anticipating they will raise wages by considerably less in the next 12 months than they did in the last,” Zollner said.
“Finding skilled labour continues to be the largest issue for firms, but it is not the extreme outlier it was a year ago.”
Problems related directly to inflation – wage and non-wage costs – continued to rate highly.
Interest rates also increased as a concern. But low turnover remained well down the list.
“Amongst firms intending to invest more, skilled labour shortages and the domestic economic outlook remain the key drivers, but it’s notable that labour costs have become more important than capacity considerations,” Zollner said.
ANZ Bank chief economist Sharon Zollner. Photo / Dean Purcell
“Among firms intending to cut their investment, the biggest factor by far is the domestic economic outlook, but interest rates are now second.”
Firms also reported that shipping disruptions continued to ease.
Westpac senior economist Satish Ranchhod noted that expectations for inflation over the coming year had dropped back to 5.3 per cent.
He described that as “welcome news for the RBNZ”.
While costs were still pushing higher, input cost inflation had moderated in the early part of 2023 as fuel prices had fallen, earlier supply bottlenecks had gradually cleared, and shipping costs had been normalising, he said.
“Consistent with that, the number of businesses who reported that their operating costs have risen has fallen back to 76 per cent – that’s the lowest it’s been since 2021.”
BNZ Head of Research Stephen Toplis noted that profit expectations remained weak.
That might be because demand was now softening meaning there was increasing resistance to price increases, he said.
“This may, in part, explain why pricing intentions are diminishing. A lofty net 49.3 per cent of businesses still intend raising prices but this is, nonetheless, the lowest reading since March 2021.”
BNZ was of the view that annual inflation would fall relatively rapidly over the next 18 months such that it settled within the Reserve Bank’s target band by September 2024, he said.
“Today’s survey is consistent with that fall being well under way. That said it is disconcerting to see that the pricing intentions of retailers, the prices of whom dominate the CPI, remain elevated. A net 64.3 per cent of retailers still intend to raise prices.”
Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist as well as presenting and producing videos and podcasts. He joined the Herald in 2003.
