Business Optimism Grows Despite Ongoing Challenges

According to ANZ’s chief economist, Sharon Zollner, this trend is fostering a renewed sense of confidence among businesses, with forward-looking indicators showing an upward trajectory.

The survey indicates that overall business confidence has increased by five points to a level of +66. In addition, expectations regarding individual business activity have also risen, albeit more modestly, with a one-point increase to +46.

There has been a significant rise in reported past activity and employment, with experienced own activity climbing eight points to -11, marking its highest level since March. However, Zollner notes that most sectors, except agriculture, still report negative figures in terms of past activity and employment. This suggests that more businesses are experiencing declines compared to those reporting improvements when looking back over the past year.

Despite this uptick in optimism, the retail sector appears to be struggling, having lost some of its recent gains. This downturn may correlate with a drop in consumer confidence observed this month. The mixed performance across sectors highlights the uneven recovery in the business landscape.

On the inflation front, expectations have eased slightly, dropping by 0.1 per cent to 2.8 per cent. While this figure remains close to the upper limit of the Reserve Bank of New Zealand’s (RBNZ) target band, the central bank has indicated that annual inflation is converging towards the desired 2 per cent midpoint. In early October, the RBNZ reduced the Official Cash Rate (OCR) from 5.25 per cent to 4.75 per cent, a move aimed at fostering economic growth amidst moderating inflation.

The survey also revealed that the average expected price increase among firms rose to 1.7 per cent. Although the net proportion of firms anticipating higher costs over the next three months fell from 67 per cent to 64 per cent, the per centage planning to raise prices slightly increased from 43 per cent to 44 per cent. Both figures remain above pre-COVID levels, suggesting persistent pricing pressures.

Wage growth has remained stable, with reported increases averaging 3 per cent year-on-year across sectors. Expectations for wage increases over the next year have eased slightly to 2.6 per cent, aligning with the RBNZ’s inflation targets. This stability in wages is viewed positively, as it is consistent with the goal of maintaining consumer price inflation around 2 per cent.

While the survey suggests a potential uptick in the labour market, Zollner cautions that the market typically lags behind broader economic activity. Therefore, while optimism is on the rise, businesses may still face significant challenges ahead as they navigate a complex economic landscape. Overall, the October ANZBO reflects a cautious yet hopeful sentiment among businesses, pointing to gradual recovery amid ongoing pressures.


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