Businesses remain very upbeat about the year ahead. There are also some signs that current conditions are gradually improving.
Key results (November 2024)
- Business confidence: 64.9 (Prev: 65.7)
- Expectations for own trading activity: 48.0 (Prev: 45.9)
- Activity vs same month one year ago: -9.7 (Prev: -10.5)
- Inflation expectations: 2.53% (Prev: 2.83%)
- Pricing intentions: 42.2 (Prev: 44.2)
Business confidence remained close a ten-year high in the November survey. General sentiment was slightly lower compared to October, but firms’ own activity expectations – which have tended to correspond more closely with GDP growth – rose another 2 points to 48.
Confidence was stronger this month in the agriculture, retailing and services sectors. This was partly offset by a drop in construction and manufacturing (though the latter was coming off a sharp rise in October).
The surge in confidence in recent months has followed the rapid turnaround in the Reserve Bank’s stance, from warning about the possibility of an interest rate hike in May, to delivering 75bp of OCR cuts (at the time of the survey) with the strong likelihood of more to come.
Firms’ growing confidence about the year ahead is now also being accompanied by signs of a gradual improvement in current conditions. A net 10% of firms reported that their activity was down on the same time last year – still soft, but the gap is closing compared to the net 24% who were behind the pace in July. The agriculture sector in particular is running well ahead of last year, which likely reflects the improvements in meat and dairy prices and the post-cyclone recovery in horticulture.
Meanwhile, the inflation indicators in this month’s survey were fairly benign overall. Expected inflation for the year ahead fell from 2.8% to 2.5% (this month will have captured the full response to the Q3 CPI figures, which were released mid-October). Firms’ own pricing intentions dipped slightly this month, although they remain above their long-run average. Firms continue to see a gradual easing in their own cost pressures, and wage growth expectations have settled at around 2.6% in recent months.
We’re forecasting a 0.2% fall in GDP for the September quarter, followed by a modest 0.3% increase in the December quarter. The RBNZ’s forecasts in yesterday’s Monetary Policy Statement were identical to ours. While the business confidence survey has certainly been more ebullient than other high-frequency indicators, it generally supports our view of a return to modest growth in the economy.
