According to the ANZ Business Outlook Survey, the headline confidence measure jumped 23 points to reach a decade-high of +51 in August. Additionally, the ‘expected own activity’ measure rose by 21 points to +37, marking a seven-year peak.
The timing of the survey, which was conducted around the Reserve Bank’s decision on August 14 to lower the OCR by 25 basis points to 5.25%, suggests that the significant rise in confidence cannot be attributed solely to this rate cut. In fact, wholesale and retail bank interest rates had been declining prior to the OCR adjustment, and business confidence had already shown improvement in July.
Finance Minister Nicola Willis responded to the survey with optimism, highlighting the progress under new economic management. Willis noted that businesses are beginning to feel more positive about the future, with inflation expected to dip below 3% this quarter. She emphasized that while the recovery is in its early stages, the government’s strategic approach is yielding positive results.
ANZ chief economist Sharon Zollner observed a notable increase in forward-looking activity indicators, though she cautioned that past activity remains weak. Despite the improved sentiment, actual reported activity is still very low, with New Zealand’s GDP contracting in four of the last six quarters. The Reserve Bank had anticipated negative GDP growth for both the June and September quarters.
Westpac senior economist Michael Gordon commented on the broader context of the survey findings, suggesting that the increase in business confidence reflects the previous pessimism rather than the immediate impact of the OCR cut. He noted that the prospect of extended economic stagnation had been daunting for many businesses earlier in the year. The Reserve Bank’s decision to cut rates was influenced by recent weak activity indicators, though there has been some improvement since then. This shift may influence future rate decisions, potentially reducing the likelihood of larger rate cuts.
The survey also revealed significant sectoral variations. The construction sector reported the weakest performance, followed by retail, while agriculture showed increased activity compared to the previous year. The Reserve Bank remains focused on inflation and pricing intentions, with inflation expectations dipping to 2.9%, the first sub-3% reading since July 2021. Despite this, businesses anticipate a modest increase in prices and costs.
Overall, while the boost in business confidence is a positive sign, it is emerging from a period of considerable economic strain. Zollner indicated that ongoing monitoring of various economic indicators will be crucial to determining whether this optimism is sustained and how it might affect business decisions. The Reserve Bank will also be closely observing these trends as it navigates future monetary policy adjustments.
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