Business activity measures remained weak in June, while the inflation gauges are steadily heading in the right direction.
Key results (seasonally adjusted):
- General business confidence: -35.4 (Previous: -24.9)
- Trading activity, past three months: -27.8 (Previous: -24.2)
- Trading activity, next three months: -10.4 (Previous: -12.3)
- % reporting a rise in operating costs over the past 3 months: 41.3 (Previous: 52.0)
- % who increased output prices over the past 3 months: 22.4 (Previous: 33.4)
Businesses remained downbeat on their prospects and the wider economy in the June quarter survey of business opinion. Meanwhile, the measures of cost and price pressures suggest that inflation will continue to recede from its highs, though no faster or slower than the Reserve Bank would have expected.
A net 35% of firms were negative on the outlook for the economy in the June quarter, compared to a net 25% in March. While this is a very weak reading compared to history, it’s still higher than it was last year; this measure of business sentiment hasn’t fully given back its post-election bounce.
Firms’ views on their own activity were mixed compared to the March quarter, with past performance slightly weaker but expectations slightly higher. These measures tend to have a closer correspondence with GDP and are consistent with growth remaining somewhere either side of zero.
Other indicators of activity were generally weaker in June. Notably, the labour shortage has become a distant memory: workers have become much easier to find, and indeed on balance firms said that they were rapidly shedding workers in the last quarter.
One positive aspect of the survey is that the inflation indicators have continued to head in the direction that the RBNZ would have hoped. A net 41% of firms reported cost increases over the last three months, down from 52% last quarter and a peak of 80% at the end of 2022. There were similar falls in firms’ past and expected pricing.
These measures are consistent with inflation falling below 3% before the end of this year, though they’re still higher than what has historically been consistent with the 2% target. That direction of progress will be welcomed by the RBNZ. However, it doesn’t indicate that inflation is coming off any faster or slower than we or the RBNZ have been forecasting.
Our view for some time has been that the RBNZ will begin reducing the OCR from February next year – much earlier than the RBNZ’s own projections of a start somewhere in Q3 next year. Today’s survey is in line with our view. We’ll be publishing our OCR preview later this week, detailing what we expect the policy committee to conclude after its 10 July meeting.
