NZ First impressions: ANZ business confidence November 2022
Business conditions are cooling but price pressures remain hot.
Key results (October 2022)
Business confidence: -57.1 (Prev: -42.7)
Expectations for own trading activity: -13.7 (Prev: -2.5)
Inflation expectations: 6.39% (Prev: 6.13%)
Pricing intentions: 58.5 (Prev: 64.5)
The gloom is setting in. Confidence among New Zealand businesses fell sharply in November, with a net 57% of businesses now feeling pessimistic about the economic landscape. That’s a sizeable drop from what were already low levels.
Notably, the majority of businesses also expect that trading conditions on their own shop floors will deteriorate over the coming months. In fact, businesses’ expectations for their own trading activity have only been this weak twice in the past two decades – first during the 2008/09 financial crisis, and then again during the initial Covid lockdown.
Expectations for trading activity are low across all sectors, but are especially weak in the retail and construction sectors. Those are parts of the economy that are particularly exposed to the current rise in borrowing costs.
With that nervousness about the economic outlook, plans for hiring and investment have also been scaled back.
The low level of economic confidence is in contrast to some of the other economic data that we’ve seen recently. For instance, retail spending has held firm. We’ve also seen gauges of service sector activity pushing higher.
However, although activity in most parts of the economy has held up thus far, every business we’ve spoken to recently has reported both difficulties with attracting staff and large increases in operating costs. That is squeezing margins, even for those businesses who are still seeing good levels of demand.
In addition, with borrowing costs and inflation running close to multi-decade highs, businesses are bracing themselves for a slowdown in demand. Notably, we’re already hearing many of those connected to the construction sector reporting a softening in orders.
Taking a closer look at cost pressures, the vast majority of businesses (close to 90%) are reporting that they expect operating cost to continue rising over the coming months. However, the number of businesses who are planning on raising their output prices has dropped back to a still elevated 58.5%. That still points to widespread price increases over the months ahead. However, it looks like businesses are becoming less certain about their ability to pass on cost increases as demand cools. And that signals ongoing pressure on margins.
Lastly, expectations for inflation over the year ahead have picked up again, rising to 6.4% (from 6.1% last month). That’s a large increase and leaves expectations at their highest level in more than two decades. That will be a particular worry for the RBNZ who recently delivered a jumbo sized 75 basis point hike in the Official Cash Rate. A key reason for the RBNZ’s hawkish stance has been the creep higher in inflation expectations and risk of a protracted inflation cycle. Today’s result will have done nothing to ease the RBNZ’s nerves about the near-term inflation outlook.
Media Contact:
Satish Ranchhod, Senior Economist
P: +64 9 336 5668
M: +64 21 710 852
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