Businesses are feeling “relatively optimistic” according to the ANZ Business Outlook (ANZBO) survey for October, despite the vast majority of them remaining concerned about future cost pressures.
Every month, ANZ surveys 1,500 New Zealand businesses to analyse where the economy is heading over the next year.
Business confidence edged up just 1 point to +53 in October, despite businesses being “relatively optimistic” last month, according to ANZ chief economist Sharon Zollner.
The expected own activity outlook edged down 2 points to +46 in the October survey, with manufacturing recording the strongest result at +59 and agriculture the weakest at +38.
The own activity outlook for construction was +52, retail came in at +43 and services were +44.
“The construction sector is very patchy, while agriculture is delicately poised – the sector has had an excellent few years and the exchange rate is in their favour, but interest rates are rising and all the talk of drought risk will be unsettling,” Zollner said.
Inflation expectations were steady at 3.3% in the October survey, with a net 82% of firms expecting higher costs. This is “very high” but unchanged from September, Zollner said.
“Meanwhile, pricing intentions lifted 4 points to a net 52% of firms expecting to raise prices in the next three months, the highest since May, and the amount by which they expect to raise them (1.9%) was the highest since June,” she said.
While the renewed lift in oil prices is a headwind for the NZ and global economy, Zollner said the latest ANZBO survey reflected what business owners are also sharing with the bank in person. Particularly, that the confidence shock that brought the NZ economy to a near stop in the second quarter of the year hasn’t been repeated and expected activity has held up.
“Some firms have been pleasantly surprised by the resilience of demand in the face of the price increases; others are realising that come what may, continually deferring some decisions, such as around investment, brings its own risks,” she said.
The services sector enjoyed the biggest bounce when it came to businesses’ export intentions in October, jumping to +49 from +24 in September.
“A standout this month was services sector export intentions jumping to a 25-year high – clearly someone is enjoying the weak NZD,” Zollner said.
“The data can be volatile, but there is a broad relationship with exports of services volumes (looking through the Covid-era border closure). Strong forward bookings have the jobs-rich tourism sector feeling optimistic about the coming season despite rising airfares.”
Export expectations fell the most for the manufacturing sector in October, declining to +27, from +55 in September.
Unlikely to change minds
Westpac NZ senior economist Michael Gordon said the proportion of businesses expecting higher costs and planning to increase their own prices, remains well above pre-Covid levels.
“However, the expected size of these increases remains relatively muted, and lower than what we saw in the initial stages of the Iran conflict,” he said.
“This perhaps speaks to the view of some of the RBNZ Monetary Policy Committee members, including Governor Anna Breman, that the extent of second-round inflation pressures is less than they initially feared.”
The Reserve Bank (RBNZ) held the Official Cash Rate (OCR) at 2.75% on Wednesday, a shock to bank economists and financial markets as they expected the OCR to be increased to 3% to combat inflation and a weak NZ dollar.
Gordon said ANZ's business outlook survey is one of the relatively limited number of major data releases ahead of the RBNZ’s next OCR review on December 9, with the next ANZBO survey being released on November 30.
“Today’s results are unlikely to change minds one way or another – the hikers at yesterday’s OCR decision will note the resilience of activity, while the holders will note the muted degree of cost pass-through,” he said.
“Our view remains that the RBNZ is likely to deliver a 25 basis point OCR hike in December, but this is far from a done deal.”
ANZ’s Zollner said on Wednesday that ANZ economists are currently forecasting three hikes to the OCR at the RBNZ’s next three monetary policy meetings, in December, February and March.
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