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ANZ Business confidence: A Christmas carol

Fuseworks Media
Fuseworks Media

Headline business confidence was little changed from last month’s low levels, but there was a mildly encouraging bounce in firms’ views of their own activity.

A net 38% of businesses are pessimistic about the year ahead, versus 39% in November. Headline business confidence remains negative across all the five sub-sectors.

While business confidence remains low, firms’ views of their own activity, which has the stronger correlation to GDP growth, lifted from +7 to +16. Other activity indicators remain subdued.

"The change in policy direction that comes with a new Government has no doubt caused a degree of apprehension amongst businesses. However, one headwind that does appear to be easing is the reported difficulty of getting credit. This may be one of the factors explaining the welcome, albeit modest, bounce in the own activity measure," said ANZ Chief Economist Sharon Zollner.

Key December movements included:

- A net 3% of firms are expecting to lift investment, down 1 point.

- Employment intentions lifted from -3 to +3, well off their July peak of +26.

- Profit expectations bounced from -13 to -3 - still on the wrong side of zero.

- Residential construction intentions lifted from +17 to +22; commercial construction intentions jumped from 0 to +16. Both series are volatile.

- A net 25% of businesses expect it to be tougher to get credit, versus 41% last month.

- Firms’ pricing intentions eased slightly from +31 to +29. Inflation expectations were steady at 2.3%.

- Our composite growth indicator, which combines business and consumer confidence, now suggests growth of around 2-3%.

"After lifting last month (albeit to still-modest levels), inflation expectations and pricing intentions were fairly steady in December. Cost-push inflation pressures are not likely to go away, but we suspect it remains a difficult environment for pushing through price increases.

"Although we are constructive on the medium-term outlook, we see downside risk to both the Reserve Bank’s and Treasury’s growth forecasts, which both portray an economy growing above trend. That would be quite an achievement for an economy so far into the business cycle.

"The economy is doing the hard yards at the moment. Positive forces remain, but the turn in housing, flattening off in net migration and lack of capacity in the construction sector are all dampening near-term growth."

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