Business confidence slips as economic pressures heat up

Wednesday, 31 March 2021

Protesters opposing Covid-19 lockdowns in Queen St in September. A further lockdown in March appears to have taken its toll on business confidence.

Business confidence has fallen as rising costs and supply problems weighed heavily on many.

The ANZ business outlook for March said Auckland's snap lockdown in March also no doubt played a role in the 11 point drop in confidence that month, to minus 4.1 per cent.

ANZ chief economist Sharon Zollner said the downwards tick in business sentiment was consistent with her view that the economy would start to struggle as the lack of tourists began to bite, and the “unsustainable bounce in retail spending” started to dissipate.

“The levels remain relatively robust but may have peaked for now.”

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Westpac economist Gregorius Steven said ANZ's figures showed the theme of a mixed economy continued, “with domestically focused firms (such as builders) showing stronger signs of activity compared to those exposed to tourism (such as services)”.

Overall, he said, business conditions remained around average, but there were important differences across sectors, and firms continued to be under pressure to raise their prices.

While businesses’ expectations of their own activity also eased, by 4 points to 16.6 per cent, employment plans lifted 4 points to 14.4 per cent.

Shipping delays such as the grounding of the Ever Given in the Suez Canal this week are adding to rising price pressures.

The number of firms planning to invest waned somewhat, down 4 points to nearly 12 per cent.

And signs of inflation grew stronger. About 73 per cent of firms expected costs to rise, and expectations were more than 80 per cent in the construction, manufacturing and agriculture sectors.

Nearly half the respondents, a net 47.3 per cent, intended to raise their prices, a historically high level.

Construction was the more optimistic sector about its future activity, but still reported being much less busy.

In residential construction, firms anticipating further growth fell from 52.2 per cent to just under a third. Commercial construction eased to 22 per cent, down about 5 points.

Rising price pressures appeared widespread, Steven said, and inflationary expectations were now close to 2 per cent.

“We think that some of the strength present in inflation is being driven by temporary supply disruptions which should gradually ease towards year end,” he said.

ANZ’s Zollner said freight disruptions remain problematic, and finding skilled labour were the biggest problem, over and above securing credit.

She said Auckland’s snap lockdown in March made the data harder to interpret but as demand cooled “and the tourists are missed more and more, the economy will go largely sideways this year”.

“The quicker cooling we now expect in the housing market plays into this theme as well. The vaccine rollout and the subsequent border re-opening will be game-changers, though it won’t be click-of-a-switch stuff.

“But there’s a path to the new normal, whatever precisely that looks like, and we’re on it. We’ll be keeping an eye on construction for possible bumps in the road.”