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New Zealand Economic Sentiment June 2022

New Zealand: Business confidence plunges deeper into pessimistic terrain in June

The ANZ bank business outlook indicator fell in June. As a consequence, a net 62.6% of firms reported that they expect general business conditions to worsen in the year ahead, deteriorating markedly from a net 55.6% of firms expecting bleaker general business conditions in the year ahead in May. As a result, the headline moved further below the net-0% threshold that separates pessimism from optimism among businesses.

Business grew more downbeat with regards to profit expectations ease of credit and residential and commercial construction. Moreover, pricing intentions rose.

Meanwhile, firms’ outlooks regarding their own activity—a metric which has a stronger correlation to GDP growth—plummeted to a net minus 9.1% in June from a net 4.7% in May.

Commenting on the release, Sharon Zollner, chief economist at ANZ, stated:

“Firms continue to do it tough. The expected outlook is slipping, which makes sense with the RBNZ on the inflation-fighting warpath, determined to cool the economy. For now, supply-side issues remain firms’ biggest problems: finding skilled labour, costs, and wages being the top three. The RBNZ needs those problems to ease, and weakening demand to move up the charts. That’s what’s required to bring inflation pressure down.

Of course, weaker demand might ease the overtime, but it’s unlikely to enhance profitability. That moment of happy equilibrium between demand and supply may prove fleeting, with the RBNZ entirely willing to incur the risk of a hard landing to ensure the long-term structural health of the economy in terms of well-anchored inflation expectations.”

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