Preliminary July data for the ANZ Business Outlook has shown a much stronger lift in economic activity than economists have been forecasting - inevitably raising questions of whether the improved mood will last

Preliminary July data for the ANZ Business Outlook has shown a much stronger lift in economic activity than economists have been forecasting - inevitably raising questions of whether the improved mood will last

Business confidence is bouncing back in a much stronger manner than economic forecasters have been expecting.

Preliminary results in the latest ANZ Business Outlook Survey for July show that while most activity measures are still in the minuses - they have bounced back very strongly. It's worth reminding ourself how bad confidence got in the ANZ survey during the lockdown when there were record low readings.

Levels in some cases are now back within the ranges that prevailed over 2019.

And that's not what economists have been forecasting.

The inevitable question is whether these vastly improved levels of confidence can be maintained. And there must be doubt.

The preliminary survey data showed that 'headline' business confidence lifted another 4.6 points to -29.8%.

Arguably the most watched piece of data is firms' expectation of their own activity in the year ahead. And here, the lift was much sharper, up 19.1 points to now just a net 6.8% of firms expecting lower activity for their firm in the year ahead. 

“All forward-looking activity indicators lifted from June levels and the near-term jobs picture improved. New Zealand is enjoying a sharp bounce out of lockdown but the brunt of the recession induced by the closed border is yet to hit,” said ANZ Senior Economist, Miles Workman.

ASB senior economist Jane Turner, in commenting on the results said that ASB's forecast "implicitly assume business confidence will backslide from early July’s optimism".  

"Nonetheless, the strength of these results, along with real time activity indicators, do highlight that economic activity has bounced back with a gusto not expected by most economists," she said.  

"Over the past month we have revised our estimate of the year-end fall in GDP (Dec 20 quarter vs Dec 19 quarter) up from a fall of 7%, to a fall of 5% and note we have been on the more upbeat end of the spectrum of forecasters during this time. 

"If strong business and consumer confidence can be sustained, and we don’t see the lift in unemployment we are expecting, perhaps we will be revising our economic forecasts up again."

Some further details from the ANZ Business Outlook include:

·A net 4.5% of firms expect to reduce investment (up 16 pts).

·A net 26% expect lower profits (up 21 pts), and a net 3% expect lower capacity utilisation (up 13 pts).

·The near-term employment picture improved markedly. A net 15% of firms expect to cut jobs, versus 35% last month. While a net 21% of firms report having fewer staff than in the same month a year ago, it was a net 37% in the June survey.

·Deflationary pressures remain evident but with some mixed monthly moves. Expected costs and pricing intentions lifted, but one-year-ahead inflation expectations fell slightly. All remain much lower than a year ago.

ANZ's Workman said New Zealand was in an enviable position ("touch wood"), with activity largely back to normal, as demonstrated by traffic and spending data and many other indicators.

"After the rigours of lockdown we deserve a pat on the back and a little splurge.

“However, the inconvenient truth remains – there’s a very large economic hole where tourism used to be. And the hardest-hit sectors – accommodation, hospitality, retail – punch above their weight when it comes to employment. Uncertainty about the outlook remains extreme and the global outlook dire.

“But for now, we’re getting on with our economic lives, and that’ll be helping to repair business’ balance sheets.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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15 Comments

The headline on the landing page is weird, given that the only net positives are costs, prices and inflation.

How about 'less bad' instead?

I think you missed the fact that these levels are the same as they were in 2019, which of course didn’t have a global pandemic and shut borders. Basically back to normal (which is always slightly negative outlook from business leaders when labour is in power)

"ANZ's Workman said ....the inconvenient truth remains – there’s a very large economic hole where tourism used to be. And the hardest-hit sectors – accommodation, hospitality, retail – punch above their weight when it comes to employment. Uncertainty about the outlook remains extreme and the global outlook dire."

DGM

Wrong.
What the article says is: 'Levels in some cases are now back within the ranges that prevailed over 2019."
This is another way of saying that most were not now back to where they were in 2019.
And 'back within the ranges' implies not quite, but not too far off.
You should also note the two indicators at the bottom of the table, both of which clearly show that the situation is worse than it was a year ago.

I wish I could understand this. The divergence between the market and the economy is wide as ever .

Right now today, on this page is a realistic assessment from the WAREHOUSE GROUP expecting asset write-downs , re-negotiating with the Bankers and closing stores. Fletchers laid off 1,100 kiwis , as did other major corporates

Yesterday Barfoot and Thompson reported business booming with record June sales .

So who do we believe and what on earth is going on ?

Is the economy to look forward to a boom or recovery , or is the market bouyant in some kind of brief rebound ?

That said , we need to understand that the "market " is not the economy .

The economy is whats actually happened and happening , its data of whats happened , and factoring in the "knowns " we can build forecasting models that estimate what could happen to the economy based on assumptions .

The market is something else , it is what players in the market are EXPECTING .

Its logical for the two to reflect different perspectives , and it makes sense that they diverge, however this divergence seems exaggerated .

Technology , food and health/pharma sector shares are back at February levels .

Is there 'value" at that level ?

Somehow I doubt it .

Hell , even Boeing shares , that massively troubled maker of planes is rebounding in the market price of the shares , notwithstanding it has openly acknowledged it needs a bailout .

Maybe history could teach us a thing or two

Between 1929 and 1933 the share markets fell and rebounded numerous times ......but it took until the 1950's , the decade in which us Boomers were born for the MARKET to recover to 1928 levels .

The developed ECONOMIES however , recovered quite quickly , The US had the New Deal and employment recovered in the 1930's , Germany was booming by 1938 , after the NAZI Government passed the Enabling Act of 1933 at a time when German unemployment was 40% , and the US was literally flying by the early 1940's .

So what is going on now ?

Who Knows , I dont

Boatman, I absolutely concur... but I’m on holiday in the central North Island and it’s booming.... an hour just to get a run down the luge in Rotavagas... cafes teaming with people. All accommodation booked out.... snow is scintillating for skiing... and it’s virtually impossible to move there are so many tourists...

It's school holidays and most people haven't yet been hit by the downturn.

Far cheaper holidaying at home than abroad so why not. If the habit sets in we wont need foreign tourists yay. Ditto for taupo, accommodation is full up. I will check out Hamilton motels by going down the main street
Edit: not full tonight but very busy, I doubt there will be much tourists often those on business.

On almost every measure we seem to be doing better than expected by now. This is encouraging and largely down to the fact are are re-opened and virus free. Lets not lose that advantage now.

Yes, we just need to work out how to actually secure our porous lax borders and lax isolation systems to retain our excellent economic advantage right now.
How many PRs are just taking a 3 week jaunt back to India and then clogging up incoming NZ air traffic? How many business people are needlessly flying to & from the USA? This nonsense needs to stop right now.

There’s actually an economic boom happening right now in some regions and some industry sectors. There is a lot of discretionary spending being redirected from international travel & related expenses onto local consumer spending, house renovations and NZ holiday trips.
The psychology of the consumer after the lockdown has changed into a kind of bounce back.

Agree boom in some sector and some region and some are badly hit so two extremes playing along with QE.

The world’s light vehicle market is forecast to decline 17.2% to 73.6-million units in 2020 due to the Covid-19 pandemic and its associated economic fallout, said GlobalData, a data and analytics company.

Firstly that equates a lot of surplus cars assuming production levels are maintained , which they will not be .

Secondly, the massive sunk cost of vehicle production lines means many will not see a return on capital sufficient to meet fixed costs ( at worst) , or at least the debt servicing costs, which will lead to bankruptcies

So I guess we can expect some brands to disappear , as they are forced into closure ,

Things have changed , and will not be the same for some time into the future

Wasnt there some talk that the market is divorced from reality... seems reality has taken a catchup :)

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