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Business confidence: Steady - ANZ

Contributor:
Fuseworks Media
Fuseworks Media

Headline business confidence fell a couple of points to net 7.0%, while firms’ own activity outlook eased 1 point to 21.3%.

Most indicators are slightly lower than their preliminary February readings, likely influenced by the snap lockdown.

"The bounce in business sentiment and activity indicators has flattened out, as was always inevitable and isn’t alarming. The levels remain solid, but the consolidation is consistent with our view that the economy will go through a flatter period this year as the real costs of pandemic and the closed border start to be more broadly felt," said ANZ Chief Economist, Sharon Zollner.

Turning to the detail, compared to December:

- Business confidence fell 2 points to net 7.0%.

- Firms’ own activity outlook eased 1 point to 21.3%.

- Investment intentions lifted 7 points, to 15.6%.

- Employment intentions lifted 2 points, with a net 10.6% of respondents planning to hire more staff.

- Firms are busy on the whole, with capacity utilisation up 6 points to 15.3%. The construction sector is the busiest by far.

- Inflation pressure is rising. Cost expectations rose 15 points to a net 71.9% of respondents reporting higher costs. A net 46.2% of respondents intend to raise their prices, a historically very high level. General inflation expectations rose to 1.76%.

- A net 1.3% of firms expect higher profits, down from 6.8% in December.

- Export intentions 5 points to a net 5.1%.

- A net 31% of firms expect credit to be harder to get.

- Residential construction intentions jumped a massive 32 points, with a net 52.2% of firms expecting higher activity. Commercial construction firms’ intentions eased 2 points, with a net 27.3% of firms expecting higher activity.

- Inflation pressures continue to build. Freight disruptions are worsening, and are most severe for the retail sector (inward) and manufacturing (outward).

"Compared to the preliminary February results, most indicators were lower, but the data was likely influenced by the fact that a big clump of responses was received in the middle of the 3-day snap lockdown period.

"The question asking firms about their current level of activity compared to the same month a year earlier shows the dynamics of the COVID-19 period very clearly. Retail and services, affected the most by both lockdowns and the closed border, fell into the deepest hole and had a later bounce and a smaller overshoot. Manufacturing has been middle of the road. Construction is booming. And agriculture has had the smoothest ride over the past year.

"There is little sign of inflationary pressures abating as yet. A jaw-dropping net 67% of retailers expect to raise their prices. On the cost side, 90% of those in the agriculture sector, and more than 80% of manufacturers and those in construction expect higher costs.

"Retail sector inflation expectations have cracked the 2% mark again for the first time since April 2019.

"Our take: 2021 will not be an easy year for the New Zealand economy. We are absolutely better off than most, and will have less economic scarring, making our economy more resilient.

"But the overshoot in demand resulting from the disruptions of 2020 is beginning to dissipate, and we expect the economy to go broadly sideways for a while as it digests the national income hit from the decimated tourism industry and as the housing market cools to something more sustainable.

"We have a lot going for us, but we’re not going to get away scot-free."

See attached report for full analysis

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