New Zealand Business Confidence Improves Strongly To -52.0, Outlook Still Gloomy

newzealand march24 27jan23 lt

Business sentiment in New Zealand improved strongly at the start of the year from a record low in December, as the shock of November's interest rate hike and recession worries eased in the economy, though the mood remained gloomy about the outlook amid intense inflationary pressures and the prospect of more policy tightening by the central bank, survey results from ANZ showed on Friday.

The business sentiment index rose by 18 points to -52 in January from -70.2 in the previous month, driven by the retail and manufacturing segments, the ANZ Business Outlook survey showed.

The index measuring firms' expected activity also improved 10 points from December to -16 in January, and the measure for investment intentions rose somewhat to -13.7 from -20.5.

The survey still implies that the RBNZ is in danger of engineering a harder landing than intended, with downside risk to residential investment, business investment and overall GDP, the ANZ said.

Inflation and pricing pressures remained intense in January. Price growth expectations remained stuck around 6.0 percent, suggesting no meaningful improvement this year, as it was 6.23 percent in December.

There's good reason for the Reserve Bank of New Zealand to keep hiking a while yet, ANZ said. Economists at ANZ expect a 50 basis points hike in February.

New Zealand businesses remain very gloomy about the economic outlook, and they continue to highlight concerns about inflation, Satish Ranchhod, a senior economist at Westpac, said.

Read more: New Zealand To Enter Recession In 2023

The economist also pointed out that today's rise in sentiment looks more like a 'dead cat bounce' than a sign that the economy is picking up.

"We continue to expect that economic growth will slow sharply over the coming year," Ranchhod said.

"In fact, we're forecasting the economy will tip into recession in late 2023 as interest rate hikes ripple through the economy."

The ANZ survey showed that employment intentions still remained very low in January despite the corresponding index rising to -11.1 from -16.3 in December. Construction companies showed weak intentions about getting new employees.

By sector, 79 percent of retail firms intend to raise their prices in the next three months, followed by manufacturing with 66 percent. Price intentions were elevated in all sectors except agriculture, where the sector itself could not set its prices.

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