NZ: Business sentiment deteriorates in the June quarter – ANZ

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Liz Kendall, Senior Economist at ANZ, notes that the New Zealand’s business sentiment deteriorated in the June quarter, according to NZIER’s Quarterly Survey of Business Opinion.

Key Quotes

“Headline business confidence deteriorated 9%pts, with a net 19% (sa) feeling pessimistic in Q2. This is the lowest level since March 2011.”

Headline business confidence points to lingering pessimism amongst businesses, consistent with our ANZ Business Outlook Survey and anecdotes from our discussions with businesses.”

The economy is experiencing a softer patch. Experienced domestic trading activity is more positive than headline business confidence, but softened in the June quarter.”

Profitability deteriorated considerably. Net 16% of firms experienced deterioration in profitability in the quarter (compared with 7% in Q1), with net 12% expecting further declines (from 0%).”

A key question regarding the outlook is how businesses will respond in this environment. Our expectation is that GDP growth will remain supported by low interest rates, fiscal spending, and supportive conditions for our exports. But given the challenges they are reporting, will firms be willing to invest? Wil they remain cautious about hiring or look to improve productivity? And will they be willing to increase prices in response to rising costs?”

“We expect that margin squeeze will provide the catalyst needed for inflation to increase, even if it is gradual. But the outlook is uncertain and it is fair to say that downside risks have increased.”

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