ANZ Business Outlook for August shows that confidence is down but intentions and expectations saw 'relatively modest falls' compared to the first half of the month

The full-month August ANZ Business Outlook survey overall confirmed the decline evident in the preliminary data in business sentiment and intentions versus July.

Headline business confidence, at -41.8%, was little changed from the early-month read, as was own activity, at -17.5%. Both of these reads are weaker than July, but didn’t deteriorate markedly as August progressed.

“Activity indicators slipped a little from their early-August preliminary reads, but on the whole, were relatively robust to the re-emergence of COVID-19 in the community on 12 August,” said ANZ Chief Economist, Sharon Zollner.

“The Alert levels differed between Auckland and the rest of New Zealand. Unsurprisingly, there was a hefty impact on current levels of both activity and employment compared to the same month a year earlier. But Auckland firms are broadly more downbeat compared to their peers elsewhere when it comes to the outlook as well. We’ll be keeping a close eye on what happens to this gap as the alert level in Auckland normalises.

“The retail sector has typically been less optimistic about profitability than the rest of the economy over the past couple of years – and further back too. After a brief recovery over June and July, as the bounce out of the initial lockdown period was more vigorous than anticipated, the sector fell back below the other sectors in August.

“That’s consistent with our consumer confidence survey, indicating households’ wariness about spending is increasing in this uncertain environment.

“The recent re-emergence of COVID-19 is disheartening, and has taken a real toll on businesses, particularly in Auckland. However, it appears that firms are looking through it to some extent, in that intentions and expectations saw relatively modest falls compared to the first half of the month.

“Should daily cases and hence restrictions drag on longer than expected, the negative impacts will accumulate. And the significant fall in experienced activity shouldn’t be downplayed, as it demonstrates that businesses’ balance sheets have taken a hit, even if firms appear relatively optimistic that activity levels will normalise once the renewed lockdown ends.

“Also, although the changes in the data after COVID reappeared were relatively muted, the fact remains that activity indicators are sitting at levels consistent with recession. The post-lockdown bounce was already showing signs of running out of puff in July as pent-up demand was inevitably starting to wane.

“The pain from the loss of international tourism will be felt most keenly once summer arrives and some of the fiscal support measures start to ease off, highlighting that it is still early days in terms of the economic impact of this pandemic.

“The fiscal response is slowing the impact but can’t prevent it; the monetary response is boosting the housing market but will have a very limited impact on business investment as long as such extreme uncertainty remains.

“A challenging road lies ahead for the economy, but New Zealand has advantages and choices that other countries would love to have. There are no ‘good’ outcomes for a tourism-dependent economy in a global pandemic, but there are certainly worse ones.”