Business confidence has soared to its highest level since before the 2017 election in which Labour came into power, according to the results of the latest ANZ Business Outlook survey.
“The October ANZ Business Outlook survey saw a bounce in most activity indicators following the All Blacks’ successful progression to the World Cup final – and the election”, ANZ Chief Economist Sharon Zollner said.
The October survey included results gathered both before and after the October 14 election and obviously during the period in which the All Blacks were making the World Cup final - though it was cut off before the ABs lost the final.
“Activity indicators jumped in the early-month sample and jumped again in the second half of the month. Of course, most activity indicators have been trending higher all year, and there is also always a degree of sample noise. That said, it would clearly be a stretch to argue there’s been no election impact," Zollner said.
“But importantly, it doesn’t follow that the results are spurious. Rather, the question becomes whether firms will follow through on these more robust intentions or not.
“The first test will be whether these stronger numbers persist or peter out. Second, we will have to wait and see what actually happens to investment, employment, activity etc," Zollner said.
In response to queries about the timing of the last time business confidence was this high in the survey, Zollner confirmed that the last time the headline confidence measure was this high was June 2017. The election that year was held in September.
She said it was important to note that no one uses headline business confidence to forecast the economy "because it does get pushed around by things like politics".
"I’m not saying it isn’t a genuinely held belief by firms that the outlook for 'general business conditions' has improved. It’s just that that belief doesn’t then reliably translate into actual business activity.
"That’s why we focus on the more micro questions about respondents’ own firms, which have a much better correlation with actual economic outcomes. And most of them have been trending up all year," Zollner said.
In terms of the survey results, headline business confidence jumped 21 points to +23 in October. Expected own activity rose 12 points to +23.
Zollner said it is fair to say that the historical data and experience suggests that people may overestimate the near-term impact of a change in Government on the business cycle, in either direction.
“Turning to inflation, the proportion of firms expecting higher costs and intending to raise their prices soon were little changed. Meanwhile, economy-wide inflation expectations were pretty flat at around 5%.
“Firms’ average estimate of where their own selling prices and expected costs will be in three months’ time is currently going sideways. The RBNZ will want to see the downward trend reassert itself, given the numbers clearly remain too high to be consistent with inflation returning to the 2% target any time soon.
“Encouragingly for the Reserve Bank, reported past wage increases (versus a year earlier) had a decent fall and the lowest read since we started asking this question in March 2022. On the other hand, expectations for wage settlements over the next 12 months were steady."
In terms of the key things to take out of the latest survey, Zollner said: “Just as we thought that the rebound in activity indicators in the ANZ Business Outlook survey might be running out of steam, we’ve seen a marked jump across most.
“Before we judge the importance for the economic outlook, particularly given the noise of the election, we’ll see whether the newfound optimism persists over the next few months. Especially since the All Blacks lost the final.
“Meanwhile, inflation pressures are gradually waning in the big picture, but there hasn’t been a great deal of progress in the last couple of months.
“It’s still a very long way back to the inflation target, and we continue to expect it’ll take at least one more OCR hike to get us there."
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