More firms now report sales are a bigger constraint on business than finding staff, according to NZIER survey. Photo / Brett Phibbs
More firms now report sales are a bigger constraint on business than finding staff, according to NZIER survey. Photo / Brett Phibbs
The latest NZIER Quarterly Survey of Business Opinion suggests the economic rebalancing being engineered by the Reserve Bank is underway, with signs that labour shortages were easing.
While it might seem perverse to read as “good news”, more firms now report sales are a bigger constraint on business than findingstaff.
Broadly the survey showed both business confidence and firms’ own trading activity recovering slightly from the weak level seen in the December quarter.
But perhaps more significantly, it showed signs of capacity pressures easing in the New Zealand economy as demand further weakened in the first quarter of 2023.
“This suggests that the increases in the Official Cash Rate (OCR) by the Reserve Bank since November 2021 have started to have a more apparent impact on dampening demand in the economy,” said NZIER principal economist Christina Leung.
In the March quarter, a net 61 per cent of businesses said they expected a deterioration in general economic conditions over the coming months (on a seasonally adjusted basis).
That was a slight recovery from the weakest level seen for this indicator in the previous quarter, Leung said.
Firms’ own trading activity also saw a slight improvement, though a net 10 per cent still reported a decline in the March quarter.
The survey showed signs of a weakening in demand more broadly.
Sales had now overtaken finding labour as the top primary constraint for businesses, Leung said.
“International border restrictions since the Covid-19 pandemic outbreak led to acute labour shortages, given many firms were no longer able to bring in workers from overseas. The relaxation of international border restrictions has helped to alleviate labour shortages, and we expect labour shortages to ease further over the coming year.”
Some 41 per cent of firms reported sales as the primary constraint for their business – greater than the 29 per cent of businesses reporting finding labour as their primary constraint in the March quarter.
“These developments point to demand and capacity pressures easing in the New Zealand economy,” Leung said.
Inflation indicators were more mixed.
While the March quarter saw a considerable decrease in the proportion of businesses reporting higher costs, the proportion which increased their prices increased slightly.
“Nonetheless, the weakening demand has flowed through to a further deterioration in business profitability, with over half of firms surveyed reporting a decrease in their profits over the March quarter,” she said.
“More recently, the December GDP release showed a 0.6 per cent decrease in economic activity over the quarter. We expect the disruptions from the floods and Cyclone Gabrielle earlier this year to further weigh on economic activity in the short term.”
ANZ senior economist Miles Workman noted the results were now in line with the bank’s own Business Outlook survey.
“The shock value from the hawkish November Monetary Policy Statement appears to have worn off a touch, with business confidence lifting, while remaining firmly in pessimistic territory,” he said.
Labour, as a limiting factor on production, eased but remained at a multi-decade high, he noted.
The fact that sales overtook labour as a limiting factor, suggested the RBNZ was “indeed getting traction”, he said.
Christina Leung is a principal economist with the New Zealand Institute of Economic Research. Photo / Mike Scott
However, indicators of “capacity-stretch” remained well above “normal” ranges, suggesting it was “still pretty inflationary out there”.
While the results of the survey were subdued, the economy wasn’t “toppling over just yet”, said Westpac senior economist Satish Ranchhod.
This downturn in business sentiment follows strong economic growth over the past couple of years, and for now, the level of economic activity remains elevated.
“However, interest rates have been on the rise for well over a year now, and today’s survey adds to the indications that the steam is starting to come out of the economy,” he said.
The RBNZ is expected to lift the Official Cash Rate by another 25 basis points tomorrow - taking it to 5 per cent, the highest it has been since December 2008.
