ANZ survey shows business sentiment in negative territory for the first time since March 2011, and the worst it has been since March 2009

ANZ survey shows business sentiment in negative territory for the first time since March 2011, and the worst it has been since March 2009

Business confidence fell sharply again in July, following a fall in June.

The data has been published in the ANZ business outlook survey.

Confidence in general economic conditions is now in negative territory.

However, firms see their own outlook much more positively.

Agriculture and construction are leading the decline in sentiment.

Today's data will raise expectations that the RBNZ will continue cutting the OCR from here.

Here is what the ASB economics team made of this July data.


Business confidence fell further in July.  The economic outlook has deteriorated rapidly over the past few months.  We continue to expect at least two more rate cuts from the RBNZ, bringing the cash rate to 2.5%.  We see the risks to this outlook as skewed to the downside as inflation pressures remain muted.


Business confidence fell sharply again in July, as the fears for the economy became more widespread.  In July, the falls in general confidence spread to previously robust areas, such as retail and services.  Meanwhile, general confidence fell even further in agriculture and construction.  However, it should be noted these declines are largely around sentiment for the broader economy and often not reflective of actual activity. 

When looking at expectations for firms’ own outlook, which is a more accurate predictor of economic growth, retail and services remain robust, while manufacturing actually lifted.  Unsurprisingly, the sharpest decline in activity expectations has been in agriculture.  Construction intentions have also dropped sharply in the past two months, particularly in commercial which is concerning. 

The decline in the headline number is very dramatic, but it overstates the weakness which is actually present in the economy.  Nonetheless, there has been a decline in firms’ expectations for their own activity, which is consistent with a material slowdown in the economy – albeit not quite to recessionary levels.

The other word of caution – over July the NZD has dropped sharply along with interest rate expectations.  It’s likely the full impact of these moves have not been captured in July’s business confidence survey.  From August, we expect confidence to stabilise, and potentially start to improve.  After all, low interest rates and a low NZD will be very simulative for the NZ economy.

Over 2015, we expect economic growth to slow from the annual rate of 3% recorded at the end of 2014, down to a relatively subdued growth in the vicinity of 2-2.5%.  However, this will be a temporary dip, and (assuming the RBNZ does go through with at least two more rate cuts), from 2016 we expect a reacceleration in activity toward 3%.

The RBNZ delivered an interesting speech on Wednesday.  It appeared the RBNZ, while still wanting a lower NZD, was concerned about the market and analysts getting too ahead of themselves with OCR expectations.   However, we don’t think the market has got ahead of itself.  The outlook for interest rates can change quite quickly in a short space of time.  On the back of this latest fall in confidence the RBNZ needs to keep an open mind that an ‘extreme’ view of OCR cuts can quickly become the RBNZ’s base case – the RBNZ wasn’t contemplating cutting interest rates 6 months ago either.  We continue to expect at least two more rate cuts from the RBNZ, bringing the cash rate to 2.5%.  We see the risks to this outlook as skewed to the downside as inflation pressures remain muted.

For the record, we also don’t see a 2% cash rate as being consistent with recessionary levels as the RBNZ stated in Wednesday’s speech.  The relationship between growth, inflation and interest rates appears to have changed since the Global Financial Crisis.  It is entirely conceivable that a still-growing NZ economy reaches a 2% OCR if inflation pressures remain conspicuous with their absence. 

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?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Comment Filter

Highlight new comments in the last hr(s).

A moderate deceleration in growth in 2015, with growth reignited by a lower OCR
and weaker currency in 2016 – that’s Plan A. We’ve got our ankles, toes and fingers crossed.

At this stage it would be wise to also consider Plan B. Dairy prices have yet
to base; it could still get uglier. Rebuild stimulus is fading. With key economic engines sputtering, the economy risks taking on glider characteristics. Most worrying are signals out of China and movements in commodity prices in general, which impacts Australia too. Suddenly the skids are being put under New Zealand’s two largest trading partners." (Cameron Bagerie - This ANZ report)

I can think of several aeronautical metaphors I would use in these circumstances, and not one of them is a 'glider'.

Avoiding falling knives also comes to mind. The incessant drum beat for lower interest rates without analysis how this will produce economic magic unseen in Japan, US and Europe, where rates remain pinned to the zero boundary is tiresome and very unproductive, to say the least.

ALBERT EDWARDS: China's stock market crash foreshadows how the 'global equity Ponzi scheme' will fall apart

huh? So you want to keep rates high? which will make the deflation worse? how does that make sense? In terms of analysis lowering rates has always in the past improved an economy and highering it cooled, ergo what more do you want in terms of conventional analysis?

Now once you step out of finance and look at energy's effect on an economy you can get an explanation of why it isnt working this time.


You do not know what you are talking about - reserve your comments for subjects where you have had practical experience - your recent misunderstanding about bond yields was profound and laughable given the amount of time you spend pretending to understand the mechanics of money and it's impact upon an economy.

Someone asks you to explain yourself and you personally attack them? Please do open the other eye from time to time, its a bright world out here.

Savers get interest to cover loss of spending power due to inflation and risk of losing their deposits in a crisis. OBR increases the risk of losing your deposit without an increase in interest to reflect this risk, the real risk becomes hidden from the market and depositors who would normally see it reflected in increased rates.
If you artificially set interest rates low you are doing the same as the Chinese government is doing to its sharemarket. While you may get an artificial shift, to speculation in assets there is not the backing from growth in the economy to support the high asset values, the correction is often swift and brutal.

studies are starting to show low interest rates are effecting growth in a negative way as the money is flowing into non productive assets and not being used for production and due too low risk in financing efficiency is not being pursued

It's not about keeping rates higher.
It's about keeping them connected with risk and return - rather than manipulated to try and encourage behaviours (ie investments, commitments, borrowing) for projects that in the [unadjusted] current economic climate really aren't feasible.

Why would I invest in a business developing a product, borrowing at 7%, seeking quality and operational behaviours that must return 12%? If I can borrow twice as much at 3.99% (ie double the leverage) and buy a over priced houses with 6% and get a safer, less hassle, comparable return.

"The Government" can't examine every option and every circumstance, there just isn't the resources and the market develops to fast and too wide. But the population is many more people with many more eyes, so like bees in a mob looking for hive locations, they can many possibilities, because each acts as an independent agent - where government process and control is the opposite.

IMO the danger with the zero boundary is not it's non-productivity. As getting rich on differentials doesn't really and much value across the board, it's more of a liquidity/arbitrage function. And inflation can only be sustained in numerical, not real, terms.

The danger to my mind, is that it's being done defensively, not as a world wide shift towards a lower leverage rate (which *would* be tough as storing equity reserves to have bigger usable margin/basel reserves takes a lot of profitable trade out of the tradables system.)

The untenable aspect is reflected in this central bank engineered outrage delivered to the citizens of Switzerland.

The Swiss National Bank Is Long $94 Billion In Stocks, Reports Record Loss Equal To 7% Of Swiss GDP - Read more here and here for balance.

Coffin Corner?

Bad news has been coming out of China and Aus for the past few YEARS. Nothing sudden about that.
I suppose the ultra low WMP prices has given reality a bit more of a fearful colour...

While this comment is not directly related to the collapse in confidence it gives some credence on how it is coming about
Bryan Gould in the NZ Herald website ( I have not been able to find it in the print edition)
comments on how the general shift to right wing dogma has been dressed up as the new centre of politics in many western countries and that there is a trend back for the left to take.
My observation seems to show that this is happening in a very minor way. Right here Andrew Little is obviously, in a minor way seen as further left than any of the most recent Labour leaders as far back to at least Bill Rowling.
In the UK there is a potential for their Labour party to elect a leader that makes the unashamedly Tory, Daily Telegraph shudder
Personally, I am not trying to present a left biased view but it is an interesting observation that the muttering about do-nothing or downright incompetent actions by Key and English is set to become much noisier and I do think that they do not have any answers that suit their political motives.

My recollection from Econ 101 (it was a long time ago) was that there is a J curve effect from a drop (or reverse for a lift) in the exchange rate. The immediate effect of a drop is a drop in consumer spending, as people feel poorer, and while whatever commitments or plans they have made work themselves through. Similarly importers take a while for the supply chain to catch up, while exporters and import substituters also take a while to get new orders.
When the ANZ talk of a lift in local activity from August, that has a ring of truth in terms of coming up the other side of the J curve.
An obvious case study is overseas travel, where it is likely plans for many will change to either shorter haul, or more domestic leisure options. As the spring arrives, that should all be helpful.
Time will tell.

worst since 2009? yet we have a rock star economy? such a "great" turn around.

Canada into recession:

In Brazil there is talk of depression rather than mere recession.

Nations dependent on commodities exports are falling like flies. Might be a lesson there.

Amazing how quickly sentiment can turn isn't it.