Business Confidence Steady as Manufacturing Sector Recovers

Business confidence in New Zealand maintained its resilience in September 2023, with the manufacturing sector indicating a potential recovery. According to the latest survey from ANZ, the overall sentiment measure remained steady, with 50 percent of firms anticipating improvement in the year ahead. Notably, a more critical measure reflecting businesses’ own activity increased to a net 43 percent, marking the highest level seen in five months.

Despite these optimistic indicators, Sharon Zollner, ANZ’s chief economist, noted that confidence was tempered by negative feedback from late survey respondents, following the release of disappointing gross domestic product (GDP) figures earlier in the month. “The survey still points to a very uneven economic recovery,” Zollner stated, highlighting the mixed nature of forward-looking activity indicators observed this month.

The survey results suggested a brighter outlook for retail, although the construction sector continues to face significant challenges. The one-year inflation expectations showed a slight increase, rising from 2.63 percent to 2.71 percent. In terms of profitability, firms exhibited mildly optimistic expectations, with hiring intentions also seeing a modest uptick, led by the manufacturing sector, which surged six-fold to 35 percent.

Zollner expressed concerns regarding profitability and low consumer spending, which persist as hurdles for businesses eager to achieve growth. “Overall, the disinflationary issues of competition and low turnover continue to dominate the inflationary problems of high wages and other costs,” she explained. However, this scenario has a silver lining: it may prompt the Reserve Bank of New Zealand (RBNZ) to focus on reducing interest rates.

“The good news is that the RBNZ is now seeing things that way as well, and is set to backstop the growth outlook with a lower Official Cash Rate (OCR),” Zollner added. She acknowledged the uncertainty surrounding the exact trajectory of the OCR in the coming weeks and months but emphasized that the central bank will adjust rates as necessary to support the anticipated recovery.

The findings from ANZ’s survey reflect the ongoing complexities within New Zealand’s economy, as businesses navigate through various challenges while also identifying opportunities for growth. As companies adapt to changing conditions, the focus on maintaining confidence and stability within the market remains paramount.