NZ dollar gains as firms start spring in less gloomy mood

Wednesday 26th September 2018

New Zealand business confidence recovered this month after spending winter in the doldrums. Investment intentions, however, continued to deteriorate despite signs the government's charm offensive may be gaining traction.

A net 38.3 percent of 390 firms surveyed in the ANZ business outlook survey for September expect general business conditions to deteriorate in the coming 12 months. That was the least pessimistic firms have been since May, and a sharp rebound from the net 50 percent expecting weaker conditions in August.

The kiwi dollar rose to 66.69 US cents from 66.46 cents immediately before the release.

Tumbling business and consumer confidence has been a political football during the past year, prompting the Labour-led coalition to launch a PR offensive. In late August, Prime Minister Jacinda Ardern sought to win over business with a new working group headed by Air New Zealand chief executive Christopher Luxon reporting directly to her.

Ardern said flagging business confidence was "a flashing great neon sign with giant lights and fireworks going off behind it" and it would be wrong to ignore the sharp decline as simply party politics.

The ANZ survey opened Aug. 30 and closed Sept. 21. A stronger-than-expected 1 percent increase in June quarter GDP was reported Sept. 20.

"It is encouraging that nearly all activity indicators out of the ANZ Business Outlook survey rebounded this month, with only investment intentions deteriorating further,” said ANZ Bank New Zealand chief economist Sharon Zollner. "If the indicators continue to rebound, it will increase the odds that while the economy may have hit a pothole, the wheels are not falling off."

Firms’ views of their own activity, which is more strongly correlated with economic growth, improved with a net 7.8 percent of firms predicting increased activity versus 3.8 percent in August. That's still "well below" the long-run average of net positive 27 percent, ANZ said. Retail remains the most downbeat sector while services are the most optimistic.

A net 9.2 percent of firms expect to reduce investment in the year ahead, a further deterioration on the net 4.7 percent tipping a reduction in the prior survey.

Today's survey showed employment intentions improved slightly with a net 1.3 percent planning to cut headcount versus a net 5.5 percent. Finding skilled labour remained the biggest issue, with 26 percent of firms identifying this as their single largest problem. In the agriculture sector, however, regulation was a far more significant concern.

Profit expectations were a net negative 13.4 percent versus negative 16.9 percent in August. A net 30.2 percent of firms intend to raise prices, up from 26.6 percent in August. A net 33.2 percent of businesses expect it will get harder to secure credit versus 35.8 percent in August. Inflation expectations dipped slightly to 2.12 percent versus 2.16 in the prior month.

ANZ noted commercial construction intentions were a net negative 4 percent, largely unchanged on the month, while residential construction intentions rose to positive 24.1 percent from 13 percent in August.

While the bounce was encouraging, Zollner said the levels are "still subdued." She noted the central bank made clear it believes the economy needs to accelerate to get inflation sustainably back to the target midpoint in an acceptable timeframe.

"We expect that at the official cash rate review this week the message will therefore continue to be that the next move in the official cash rate 'could be up or down', despite the stronger-than-expected June quarter GDP outturn," she said.

(BusinessDesk)

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