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Quarterly Survey of Business Opinion (Q4 2001)

Data Flash (New Zealand)
Quarterly Survey of Business Opinion (Q4 2001)

Key Points

In a slightly disappointing result, the QSBO survey suggests that business sentiment has barely rebounded from the lows reported in the immediate aftermath of the 11 September terrorist attacks. In seasonally adjusted terms, confidence rose from -28% (net respondents) in late September to -26% in late December/early January. In unadjusted terms, confidence rose from a -44% to -10%.

However, firms' continue to be more upbeat about prospects for their own trading activity than about the economy more generally. A net 16% of surveyed businesses expect an improvement in trading prospects this quarter (up from 11% in the previous survey). Moreover, a net 20% experienced increased trading activity in Q4, consistent with our forecast of solid GDP growth in Q4 following a weak electricity crisis-impacted Q3.

Despite relatively upbeat expectations for trading prospects, at this stage respondents appear to have no plans to increase capital spending or employment levels (the latter consistent with our reading of recent trends in the ANZ measure of job advertising).

Measures of excess demand and pricing pressures eased a little in Q4. However, in general, these measures continue to track well above their historical norms. Adjusting for seasonal effects, capacity utilisation fell from 0.906 to 0.900 (compared with an average level of 0.886) while the proportion of respondents experiencing and expecting increasing costs and selling prices also eased a little (a net 29% of retailers expect to raise prices in Q1, down from 33% in Q4, but still higher than an average net 13% over the past decade).

Of greater significance for medium-term inflation pressures, a net 25% of respondents reported that it was more difficult to find skilled labour, down sharply from the 39% of respondents reporting difficulty in the previous survey. In the past, this measure has been a good leading indicator of wage growth (see chart on next page).

There was no market reaction to the QSBO release.

Commentary

Today's QSBO, which the RBNZ would have seen prior to yesterday's policy decision and statement, was a little less positive than we had expected, especially given the apparent strength seen in some recent indicators of domestic demand (although more positive than the RBNZ or we might of feared in November). Clearly firms are continuing to adopt a cautious approach to the immediate future, despite experiencing domestic trading conditions that appear more robust than either the RBNZ or we had expected.

The very modest easing in the various excess demand and pricing indicators will have been welcomed by the RBNZ, with the fall in surveyed skill shortages of particular note. However, it remains the case that all of these indicators remain well above their historical averages, suggesting little room for complacency about the outlook for inflation, especially if prospects for the economy continue to improve. We expect that he RBNZ will wish to see a further substantial easing in these indicators when the next survey is published in April.

On balance, we think that today's data is consistent with our view that the New Zealand easing cycle has come to an end, and that the next move in the OCR is most likely to be a tightening. Over coming months, we expect the downside risks to the international outlook to gradually diminish, while the domestic economy should retain most of its momentum, particularly in the construction and housing markets, leading to a recovery in general business confidence. However, providing that wage and price data over coming months continues to remain generally well behaved, the RBNZ is expected to wait until the third quarter of this year before seeking to begin to return the OCR to a more neutral stance, with 75bps of tightening expected from current levels by the end of this year. Looking ahead, the Quarterly Employment Survey wage data on 5 February stands out as the next piece of important local data, with the next NBNZ business survey not due until the end of February.

Darren Gibbs, Senior Economist, New Zealand

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