Reserve Bank is still in danger of engineering a harder landing than intended. Photo / Andrew Warner
Reserve Bank is still in danger of engineering a harder landing than intended. Photo / Andrew Warner
Business confidence rebounded in January, as the shock of the Reserve Bank in November declaring it was using interest rate hikes to engineer a recession wore off.
A net 52 per cent of businesses, asked to respond to ANZ’s January business outlook survey, had a negative view of the economy – an 18-point improvement from December when a net 70 per cent were downbeat.
Meanwhile, a net 16 per cent had a negative view of their own business activity – a 10-point improvement from the prior month.
The results follow business confidence hitting a record low in the December quarter, according to the New Zealand Institute of Economic Research’s survey.
“Business people appear to have come back from holiday in slightly better spirits,” ANZ chief economist Sharon Zollner said.
But concerningly, inflation pressures remain intense, with an increasing portion of businesses expecting they will face higher costs, so will put prices up.
A net 91 per cent see costs rising, while a net 62 per cent expect they’ll put up prices.
Businesses expect their costs will rise by 5.8 per cent over the next three months, so will put up their prices by 3.7 per cent.
Of course, what actually happens might differ from what businesses think will happen.
As for wage growth – a “must watch” in Zollner’s view – businesses see this slowing, but remaining high.
They see wages going up by 5.5 per cent in the next year – less than the 6.7 per cent they rose by in the past year.
“The Reserve Bank won’t stop hiking [the official cash rate] until wage-price spiral risks have convincingly dissipated,” Zollner said.
As for employment intentions, this varies between sectors, but is negative across the board.
Almost a third of construction sector respondents reported they expect their employment to fall in the next year.
Zollner said the results suggest the Reserve Bank is still in danger of engineering a harder landing than intended, with downside risk to residential investment, business investment and overall gross domestic product.
“On the other hand, the ANZ Business Outlook survey indicators for consumption, employment and inflation are consistent with Reserve Bank forecasts,” she said.
“And certainly, the regrettable sturdiness in the direction inflation indicators continue to highlight that the Reserve Bank has a big job to do bringing inflation back down to 2 per cent.”
ANZ economists see the Reserve Bank hiking the OCR by 50 points, from 4.25 to 4.75 per cent, on February 22.
They see the rate peaking at 5.25 per cent – below the 5.5 per cent peak forecast by the bank in its very hawkish November Monetary Policy Statement.
Economists from ANZ, Kiwibank and Westpac earlier in the week downgraded their OCR outlooks, as inflation in the December quarter wasn’t as severe as the Reserve Bank expected.
Snippet from ANZ's January Business Outlook survey.