Reserve Bank governor Adrian Orr's monetary policy tightening is starting to get traction. Photo / Mark Mitchell
Reserve Bank governor Adrian Orr's monetary policy tightening is starting to get traction. Photo / Mark Mitchell
“Firms are wary but hanging in there,” says ANZ chief economist Sharon Zollner, commenting on the latest ANZ Business Outlook survey.
Business confidence was unchanged in March (from February) at -43, and firms’ expected own activity was flat at -9.
In the January survey, a net 52 per cent ofbusinesses had a negative view of the economy – itself an 18-point improvement from December when a net 70 per cent were downbeat.
But inflation indicators continued to inch lower – going in the right direction, albeit “painfully slowly”.
The Reserve Bank’s monetary policy tightening was starting to get traction, Zollner said.
“So far, though it’s early days, you’d have to say things do look like a soft landing – activity indicators are subdued but off the floor, labour market tightness is starting to shift, and inflation and cost indicators are very gradually easing,” she said.
“That’s not to say it’s an easy environment – expected profitability is under pressure as firms navigate still-high cost inflation and uncertain future demand,” she said.
“The winter could expose a few more rocks as the wave of tourists departs. But for now, the slowdown is looking broadly in line with the Reserve Bank’s intentions.”
Both pricing and cost expectations were down overall.
A net 83 per cent of firms in the retail sector expected to raise their prices in the next three months – up 12 points on February’s read, but still well down from a peak of 96 per cent nine months ago, Zollner said.
While pricing intentions also rose for construction ( off the back of cyclone impacts) and agriculture, they fell for manufacturing and services.
Businesses were asked about the biggest issues they faced right now.
Finding skilled labour had also become marginally easier, but was still the largest issue, providing plenty of incentive to try to poach staff from the firm next door, Zollner said.
Problems related to inflation – wage and non-wage costs – continued to rate highly.
Low turnover remained well down the list, though it was growing, and interest rates had understandably increased as a concern, she said.
By sector, retail, construction and agriculture respondents were generally more upbeat, while manufacturing and services firms became more pessimistic.
Finding skilled staff was every sector’s biggest problem, except for agriculture, for which it is just pipped by regulation/paperwork.
The agriculture sector was least concerned about wage costs relative to other concerns; the retail sector was the most.
The services sector was the least concerned about non-wage costs relative to other concerns; agriculture was the most. The agriculture sector was the most concerned about interest rates.
Firms were also asked what was driving their investment intentions.
Amongst firms intending to invest more, skilled labour shortages and the domestic economic outlook remained the key drivers.
“It’s notable that labour costs have become more important, with capacity reducing as a factor,” Zollner said.
Amongst firms intending to cut their investment, the biggest factor was the domestic economic outlook, but interest rates were increasing in importance.
ANZ chief economist Sharon Zollner says inflation needs to drop soon if we want to avoid more Reserve Bank interest rate rises. Photo / File
The construction sector was most concerned about cashflow and debtors.
Westpac senior economist Satish Ranchhod described the results as ‘less bad’ but warned that “business conditions are still a long way from being good by any description”.
“At first blush, this pessimism seems to jar with the comments that we’re hearing from businesses. In fact, most of the businesses we’ve been talking to in recent weeks have actually reported that demand remains firm (with the notable exception of those in the construction sector),” he said.
But expectations about rising costs raised “some big red flags”, he warned.
“It’s one thing for businesses to face increases in operating costs when the economy is running strong. But interest rates have rocketed higher and demand is set to turn down sharply by year’s end. That will make it much harder for businesses to deal with ongoing cost rises and certainly signals a squeeze on margins.”
