Business survey suggests economy 'on thin ice' and inflation may be peaking

Tuesday, 31 May 2022

A bleak business confidence survey published by ANZ is a sign that the economy may be in worse shape than the Reserve Bank believes and inflation may be peaking, rival bank ASB says.

The ANZ survey found a net 56% of firms expected economic conditions to deteriorate, putting their expectations at their lowest since the April 2020 ‘level 4’ Covid lockdown.

ANZ chief economist Sharon Zoller noted the proportion of firms expecting to raise their prices over the next three months had slipped slightly over the month, from 80% to a new figure of 71%.

ASB said the fact that inflation indicators “didn’t get any worse” was a sign that annual inflation, last measured at 6.9%, might be peaking.

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“Activity measures mostly deteriorated, supporting our view that the Reserve Bank is too optimistic on the near term growth outlook.”

Business and consumer confidence were around “recessionary levels”, it said.

Reserve Bank governor Adrian Orr told a select committee last week that it was not expecting a recession, although he agreed it was a risk as it moved to raise interest rates.

ASB said the results of the ANZ survey “weren’t flash”.

“It’s not just higher interest rates.

“The general explosion in costs, supply problems, difficulty sourcing staff, and squeezed profitability are all combining to push business sentiment to extremely depressed levels,” it said.

ANZ agreed the survey results were consistent with inflation peaking soon.

Firms were generally anticipating lower wage settlements next year than those seen in the past 12 months, it said.

“Firms are worried about the economic outlook, but employment and investment intentions are holding up relatively well.

“The outlook for residential construction is deteriorating rapidly, however. The survey data suggests the issuance of consents is about to fall sharply.”