Businesses expect conditions to deteriorate over the next year despite rate cut, says ANZ

Monday, 30 September 2019

The ABCs of the OCR.

Half of all businesses expect conditions to get worse over the next year, according to new data released by ANZ.

The bank's September Business Outlook Survey showed business confidence had fallen by two points, to the lowest level since April 2008, and that companies' expectations for their own performance had also fallen by one point for the fourth consecutive time.

That's despite the official cash rate being left at a record low of 1 per cent at the most recent review.

Chief economist Sharon Zollner said most indicators in the September survey had fallen, and showed a continuing theme.

'What is emerging in the survey now is weakness in key inflation indicators. Declining inflation expectations were cited as a reason for the large official cash rate cut last month,' she said.

* New Zealand's largest bank predicts Reserve Bank will slash interest rates

* Dip in business confidence points to choppy waters ahead**

Profit expectations fell five points to a net 25 per cent of respondents expecting profitability to decline, while investment intentions fell by five points.

A net 8 per cent of firms intended to reduce employment, and 40 per cent of firms thought it would be more difficult to get credit.

'The Reserve Bank will be disappointed that its unexpectedly large 50 basis points cut in the official cash rate last month does not appear to have had much impact on businesses' sentiment or investment and employment intentions,' Zollner said.

The ANZ-Roy Morgan Consumer Confidence Index also fell in September by four points to 114, the lowest in four years.

Sharon Zollner, chief economist at ANZ New Zealand said the fundamentals of the economy 'remained decent'.

Zollner said confidence in both current and future conditions had fallen and consumers were particularly wary of the future.

Despite this, the weakening shouldn't be overstated, she said.

'Households are still feeling pretty robust. Lower interest rates are likely behind the robustness in the proportion of people thinking it is a good time to buy a major household item. The tight labour market is another key support,' she said.

Consumers' perceptions of their own circumstances fell five points, and just 11 per cent felt they were better off financially than a year ago, but 23 per cent expected to be better of this time next year.

While confidence fell in every region, Wellington was the most optimistic.

Expectations of house price inflation were strongest in Wellington at 3.8 per cent, and weakest in Auckland at 2 per cent.

'While the slippage in economic growth is set to continue over the second half of the year as the economy battles headwinds, the fundamentals for the New Zealand economy remain decent,' Zollner said.

Westpac's equivalent survey, the Westpac McDermott Miller Employment Confidence Index showed that optimists only slightly outnumbered pessimists.

Households were downbeat on current and future job prospects, but were modestly optimistic about earnings growth, the survey showed.

Westpac said it was sticking to its forecast of a November rate cut, because downside surprises could come from both offshore influences, including rate cuts from the US Federal Reserve and the Reserve Bank of Australia, and flagging consumer sentiment at home.

Meanwhile, BNZ said the Reserve Bank cut, which was bigger than predicted, had 'spooked' businesses rather than boosted them.