“There’s still a long way to go, but things continue to move slowly in the right direction,” said ANZ chief economist Sharon Zollner. Photo / 123RF
“There’s still a long way to go, but things continue to move slowly in the right direction,” said ANZ chief economist Sharon Zollner. Photo / 123RF
Both confidence and expectations for inflation continue to move in the right direction, but only just.
The ANZ Business Outlook Survey for September, released today, showed another small improvement in sentiment, with overall confidence rising 6 points (+2).
It was the first time the top line confidence figure hasbeen positive since May 2021. (Positive figures indicate more optimists than pessimists based on a net basis.)
Expected own activity was flat (+11).
Meanwhile, inflation expectations fell slightly to below 5 per cent.
“There’s still a long way to go, but things continue to move slowly in the right direction,” said ANZ chief economist Sharon Zollner.
“However, pricing intentions, one of the best inflation indicators in the survey, went the wrong way in the month, and both the exchange rate and oil prices have the potential to interrupt or halt downward progress,” she said.
The survey saw many activity indicators slip slightly despite the lift in the headline measures. Export, investment and employment intentions and construction intentions, both residential and commercial, all eased.
However, the falls were small, and the overall survey was best described as ‘mixed’, Zollner said.
The survey included firms’ expected costs in three months’ time relative to today.
The economy-wide measure saw those expectations tick up from 3.6 per cent to 3.9 per cent, but overall, a downward trend remained in play.
The agriculture sector expects the highest cost increases (4.9 per cent higher in three months’ time), and construction the lowest (3.1 per cent).
The services sector expected costs ticked back up to 4.2 per cent after a decent fall last month, and the manufacturing sector’s expected cost increases rose from 3.2 per cent to 3.5 per cent, Zollner said.
Given these were expectations for increases in the coming three-month period (not over a year), the numbers remained too high, she said.
“But things are trending in the right direction.”
Reported past wage increases (versus a year earlier) edged lower at 5.5 per cent.
But expectations for wage settlements over the next 12 months ticked up from 3.7 per cent to 4 per cent, increasing for every sector except retail, which was flat.
The downward trend in expected wage growth looked like it could potentially be stalling at this point, Zollner said, although she warned against reading too much into just one month’s data.
ANZ chief economist Sharon Zollner. Photo / Captured by Friday
“The New Zealand economy is certainly patchy, and the rebound in activity indicators – that’s been evident since the start of the year – may be running out of steam. Inflation pressures are gradually waning in the big picture, but not rapidly nor in a straight line, and the jury remains out on whether it’s occurring fast enough to bring core inflation pressures down in a timely fashion,” Zollner said
Cost and wage expectations remained elevated, as did inflation expectations. The outlook for the construction sector remained key for the inflation outlook, she said.
“A meaningful decline in construction costs is part of the plan for getting inflation down.”
The proportion of construction sector firms expecting higher costs jumped to the highest in four months in the September survey.
“The turnaround in the housing market is one to watch in this regard,” she said.
“We continue to expect that the RBNZ will conclude it has more work to do to be confident that inflation is on its way back to the target band, with a 25bp hike expected in November.”
Westpac economists noted that 13 per cent of businesses reported lower levels of trading activity than this time last year.
This had continued to edge down and indicated that more businesses have seen activity levels fall rather than rise over the past year, they said.
The services and manufacturing sectors was reporting firmer conditions. In contrast, confidence in the agricultural sector was very low, however not as weak as it was last year.
Against this backdrop, plans for investment remained weak, Westpac said.
“Similarly, while hiring intentions are not weak, we are not seeing a large number of businesses looking to expand the size of their workforce.”
ANZ surveys about 1500 NZ businesses for its monthly Outlook report.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
