Good news for Government as latest ANZ Business Outlook Survey shows 'broad and consistent' improvement in the mood in the boardroom

The latest ANZ Business Outlook Survey has shown a big jump in business confidence in a sharp reversal of what had been a falling trend pretty much the whole year.

The survey showed 'headline' business confidence was still in the negatives, but nevertheless improved by 16 points to a net 26% of respondents reporting that they expect general business conditions to deteriorate in the year ahead.

Firms’ expectations for their own activity over the year ahead, a better economic indicator, did make it into plus territory - they rose 17 points to +13.

“The improvement in the ANZ Business Outlook survey this month was broad and consistent," ANZ chief economist Sharon Zollner said.

"The significant easing in both interest rates and the exchange rate is clearly working its way through the economy, and the remarkable resilience of New Zealand’s commodity prices is providing an invaluable buffer to the world’s woes."

The Government has been plagued by poor and falling business confidence levels virtually since taking office in late 2017. So, this sudden upsurge in confidence levels in one of the most influential confidence surveys will be a welcome boost for it.

In terms of the detailed results in the survey:

·Employment intentions rose 12 points to a net 3% of firms intending to lift employment. Investment intentions rose 12 points to +6%, with lifts across every sector. Capacity utilisation rose 5 points to +5%.

·Profit expectations jumped 16 points. It remains in the red at a net 5% expecting lower profitability but that’s the strongest read in 19 months.

·Commercial construction intentions rose 6 points to +6; residential lifted 13 points to +8. But the construction sector is still planning to cut jobs.

·Export intentions rose 1 point to +1. Expected availability of credit rose 5 points but a net 31% of firms are still expecting credit to be harder to get.

·A net 45% of firms expect higher costs (down 3), the lowest print since we started asking the question in April.

·Pricing intentions were unchanged with a net 24% of firms expecting to raise prices, but they bounced back in the retail sector (+38%). Inflation expectations were up 0.1%pts to 1.72%.

Zollner said it was important to note that the activity indicators across the survey remain subdued in level terms.

"Headwinds for businesses persist: credit availability, capacity constraints, elevated costs, uncertainty, vigorous competition, high household debt, and the awkward fact that our biggest trading partners appear to be in a spot of macroeconomic bother. But as we have long said, there is no reason for the New Zealand economy to go into recession as things stand.

“We continue to expect growth in the New Zealand economy to trough shortly and increase – albeit gradually – from here. Growth bottoming out around 2% would be a pretty good outcome. Firms have clearly been deeply concerned about the outlook, not without cause, and this has dampened investment and employment this year. The global economy absolutely could still throw a curve ball in our direction. But it appears that the vibe is changing to ‘getting on with it’. Good stuff.”