Off The Smell Of An Oily Rag: Business Confidence Improves Without Pricing Intentions

• Business confidence markedly improved in the September quarter. Expectations of further RBNZ rate cuts underpins the improved sentiment. However, experienced trading activity remains weak. The here and now demands more rate relief.
• The most encouraging read was the substantial improvement in pricing indicators. Compared to previous quarters, a far smaller proportion of firms have raised their prices. Inflation is under control.
• We remain in recession... with experienced activity subdued. But the outlook has improved, so long as the RBNZ keeps cutting. Businesses are more optimistic. But that optimism has yet to translate into activity.

The NZIER’s quarterly survey of business opinion (QSBO), the best on the street, showed a marked improvement in business confidence. In the September quarter, only a (seasonally adjusted) net 5% of businesses expect economic conditions to deteriorate in the coming months – a much smaller proportion than the net 40% in the prior quarter. The meaningful improvement is an emphatic sigh of relief from Kiwi businesses. Policy settings have been too restrictive for too long. But now that the cutting cycle has begun, businesses are lifting their heads and looking to next year. To keep up confidence, the RBNZ now needs to deliver.

There is light at the end of the tunnel. But it’s still some distance away until we’re out of the shadows. According to Kiwi businesses, it is still a challenge to navigate the current economic environment. Experienced activity levels remain subdued. A net 31% of firms reported a decline in trading activity, an increase from a net 27% in the June quarter. There’s risk we do record a triple-trough recession. The data points to yet another quarter of the Kiwi economy running backwards. At the very least, below-trend growth remains the near-term outlook.

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