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New Zealand Economic Sentiment June 2021

New Zealand: Business confidence weakens in June amid mounting inflation expectations

The ANZ bank business outlook indicator dropped in June. As a consequence, a net 0.4% of firms reported that they expect general business conditions to worsen in the year ahead, swinging from a net 1.8% of firms reporting that they expected general business conditions to improve in the year ahead in May. Therefore, the headline reading moved below the net-0% threshold that separates optimism from pessimism among businesses.

June’s result mainly reflected weaker employment intentions more than offsetting stronger profit expectations as well as improved export and investment intentions.

Meanwhile, firms’ outlooks regarding their own activity—a metric which has a stronger correlation to GDP growth—jumped to a net 29.1% in June from a net 27.1% in May.

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

“Shipping disruptions, rising global commodity prices, the higher minimum wage, labour shortages due to both the closed border and uneven sector growth are creating a perfect storm for the supply side of the economy at the same time as demand is holding up much more than firms (or economists!) had anticipated. Headline inflation is set to jump over the next six months as a result, but it’s best to focus on wage growth and inflation expectations for clues regarding when the Reserve Bank might conclude they can no longer look through inflation pressure and simply wait for temporary pressures to subside, necessitating a higher OCR.”

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