NZ QSBO: down, but not out - ANZ

Analysts at ANZ explained that the pessimism among NZ businesses persisted into 2018.

Key Quotes:

"Sentiment improved only slightly, with an uncertain policy environment, capacity pressures and intense margin pressures persisting into 2018."

"But firms’ own activity measures continue to hold up. Reported activity over the past three months picked up 5%pts to net 15%. Expectations for the three months ahead were broadly stable at 16% – still pointing to reasonable levels of activity in H1, but nothing to write home about."

"Overall, we are left with the impression of an economy running at reasonable pace, but with late-cycle headwinds looming. Capacity and cost pressures remain intense, and firms are still looking to increase prices (although the key issue remains how much success they will actually have). However, hiring intentions slipped as firms grapple with difficulty finding labour and rising labour costs."

"Headline business confidence lifted 2%pts to -9% (sa) in Q1; a small contrast to our own Business Outlook survey, which fell slightly reflecting higher exposure to agriculture. Pessimism persisted among manufacturers, retailers and services, with the building sector slipping further (as profitability took a dive). By region, pessimism was particularly acute in Manawatu-Whanganui, Marlborough and Gisborne."

Importantly, despite ongoing pessimism in headline confidence, firms’ experienced domestic trading conditions picked up slightly, with a net 15% of firms reporting an increase in their own activity (versus +10% in Q4). Looking forward, a net 16% of firms expect their own activity to pick up in Q2, down from 17% in the previous survey, but consistent with a reasonable pace of GDP growth."

"Pessimism has weighed on firms’ intentions to invest in new buildings, while intentions to invest in plant and machinery picked up 7%pts to 17%, reflecting both the difficulty finding labour and an outlook for higher labour costs. Businesses have become a bit more cautious about hiring, with intentions dropping by 6%pts to net 6% (the lowest since 2013).

Overall, we are left with the impression of an economy running at a reasonable pace, but with late-cycle headwinds looming. Capacity and cost pressures remain intense, and firms are looking to increase prices. Firms’ hiring intentions are one to watch going forward, as we see ongoing strength in the labour market as a pre-requisite to an ongoing lift in underlying inflationary pressures."