Business confidence improved in November, although firms' inflation outlook continued to weaken, prompting National Bank economists to move their forecast for the next hike in the OCR back to the second quarter of 2011 from March 10, ANZ and National chief economist Cameron Bagrie said in the National Bank's monthly business outlook survey.
This is despite such business confidence levels suggesting economic growth over the next year of 4%, National Bank said.
A net 33% of businesses expected better times for the economy over the coming year in November, up 9 points from October, Bagrie said.
"Seasonal factors play a mild role in business sentiment from month to month and when we adjust for such influences, business confidence showed a 15 point lift, from +10 to +25. Last month’s mild turn upwards now shows signs of having legs," Bagrie said.
"Firms’ perception towards their own business continues to strengthen. A net 35% expect better times for their own business over the year ahead, up four points on the month prior. When adjusted for seasonal influences, the lift is nine points with sentiment rising from +23 to +32," he said.
However, pricing intentions continued to weaken, with a net 18% of businesses expecting to be raising prices over the coming year, down from a net 25% in October.
"We now expect the RBNZ to keep the Official Cash Rate at 3% until the second quarter of 2011. While we are encouraged by the lift in sentiment this month, challenges remain and we are particularly attuned to global developments. Low pricing pressure despite October’s GST spike gives the RBNZ scope to support the economy via accommodating monetary policy and continued low interest rates for a while yet," Bagrie said.
Here is the release from the National Bank:
Business sentiment continues to improve. A net 33 percent of businesses expect better times for the economy over the coming year, up 9 points on the month prior. Business confidence improved across all sub-components.
Seasonal factors play a mild role in business sentiment from month to month and when we adjust for such influences, business confidence showed a 15 point lift, from +10 to +25. Last month’s mild turn upwards now shows signs of having legs.
A perkier tone is apparent across the entire survey.
Firms’ perception towards their own business continues to strengthen. A net 35 percent expect better times for their own business over the year ahead, up four points on the month prior. When adjusted for seasonal influences, the lift is nine points with sentiment rising from +23 to +32.
This has taken expectations from below average to above average (NB: the historical average is +26).
Profit, employment and investment intentions all improved.
Such levels are a far cry from flagging an economy that is off to the races. You need to walk before you can run. Such readings merely take sentiment back to where it resided around June and July.
But every journey starts with small steps. October was the first tentative step. November has seen this lengthen to a stride.
Pricing intentions continue to weaken. A net 18 percent of businesses expect to be raising prices over the coming year.
We now expect the RBNZ to keep the Official Cash Rate at 3 percent until the second quarter of 2011. While we are encouraged by the lift in sentiment this month, challenges remain and we are particularly attuned to global developments. Low pricing pressure despite October’s GST spike gives the RBNZ scope to support the economy via accommodating monetary policy and continued low interest rates for a while yet.
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