The residential construction sector is under pressure.
The residential construction sector is under pressure.
Business confidence is very much “glass half-full” as it navigates a “patchy economy”, but it held firm in February, according to the latest ANZ Business Outlook survey.
But it was the retail and construction sectors that were mostly “glass half-empty”, both taking a notable dive in confidence, the survey showed.
Business confidence eased two points to +35 in February. Firms’ expected own activity rose four points to +29.5.
A positive figure indicates more optimists than pessimists (on a net basis).
“The ANZ Business Outlook continues to portray a patchy economy, with green shoots in some areas, but ongoing challenges in others,” said ANZ chief economist Sharon Zollner.
“Certainly, this survey doesn’t suggest the economy is rolling over or that inflation has been beaten.”
Zollner said the survey saw lifts in most forward-looking indicators such as own activity, investment and employment intentions, as well as profit expectations.
There was also marginal progress on the inflation side, with expectations falling from 4.3 per cent to 4 per cent.
“Inflation expectations took another step lower, likely mirroring the fall in CPI inflation in Q4,” Zollner said.
“Inflation expectations tend to tell you more about where inflation has been than where it’s going.
“We continue to think there’s a high chance that forthcoming data will show more work needs to be done to return inflation to target in an acceptable time frame.”
The construction sector fell 13.8 points to +30.3, below the overall business confidence figure.
The outlook for commercial construction was far worse at -3.4 (down from +16.7 in January).
Residential construction was up to +7.4 in February (from -3.7 in January).
Zollner said residential construction was volatile but hanging in there, while commercial construction “could be and has been worse”.
“Expected cost growth ticked higher for both manufacturing and construction,” Zollner said.
Meanwhile, retail confidence slipped back 9.2 points to +32.
“Renewed shipping woes for retailers (inward) and the agriculture sector (inward/outward) are starting to look concerning,” Zollner said.
“Freight delays to and from Europe are particularly significant at present, with ships diverting around Africa due to the risk of attacks in the Suez Canal, and the capacity of the Panama Canal also restricted due to drought.”
Retail confidence slipped back 9.2 points to +32 in February's ANZ Business Outlook survey.
Westpac chief economist Satish Ranchhod said the survey showed business sentiment has remained firm.
“Even so, trading conditions have been soft, and inflation pressures are lingering,” he said.
“Sentiment in the business sector has taken a step higher since last year’s election, with the coalition Government’s policies expected to be more business-friendly... However, that resurgence needs to be taken with a grain of salt.
“A net 5 per cent of businesses actually reported that trading activity has declined over the past year.”
Ranchhod also noted the particular weakness in the retail and construction sectors.
“That’s consistent with the feedback we’ve received from businesses around the country, which highlighted increasingly tough trading conditions as high inflation and interest rates continue to weigh on demand.”
He said while expectations for inflation are dropping back, the number of businesses planning on raising their prices remains high, especially in the retail and services sectors.
“That’s consistent with our expectations that inflation will return to the RBNZ’s 2 per cent target only gradually.”
Governor Adrian Orr said, “The risks to the inflation outlook have become more balanced.”
He noted core inflation and most measures of inflation expectations had declined.
Inflation was still forecast to get back within the 1-3 per cent target band by September 2024 and to the 2 per cent mid-point by the end of December 2025 (a fraction later than in the November forecasts), he said.
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports.
