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Data Flash NBNZ Business Survey - March 2002

Data Flash (New Zealand) NBNZ Business Survey - March 2002

Result: Confidence rose to +20% (net respondents) from +16%, while firms' assessment of their own activity outlook improved to +41% from +39%.

Implication for markets: We think the results are broadly consistent with the latest RBNZ projections and with our view that the RBNZ will hike the OCR by 25bps at each of the next two meetings (17 April and 15 May).

Commentary

The broad picture of the economy painted by the latest survey is little changed from a month earlier. The economy appears to be growing at around its trend rate of growth and generating a level of inflation pressure that is closer to the top of the RBNZ's 0-3% target range, than to the midpoint. At this stage, there is no sign of the explosive economic growth seen in the mid 1990s. Confidence is close to its historic average (indeed, if anything, lower than its average once seasonal effects are taken into account) and firms' assessment of their own trading prospects is consistent with growth of around 3.5%. In our view, further rate hikes by the RBNZ (including 25bps hikes at both the April and May meetings), a further appreciation of the NZD, and the impact of a declining terms of trade should be sufficient to restrain the economy to something close to its sustainable rate if growth over the next two years, notwithstanding our expectation of a vigorous global economic recovery and the impact of substantial net migrant inflows. However, whether or not this outcome will be sufficient to return core inflation to a rate close to the midpoint of the target range remains to be seen.

Key points

General business confidence rose to +20% (net optimism) in March from +16% in February. After adjusting for seasonal effects (respondents tend to be more optimistic during the summer months), confidence rose to 0% from -4% last month. Given unstable seasonal factors, the month on month change in the seasonally adjusted series should be interpreted with a degree of caution. Firms remain more confident about their own activity outlook than about the economy more generally. A net 41% expect an improvement in their own business activity, up from 39% last month. After adjusting for seasonal factors, confidence rose to+32% from +30%. Based on past relationships, this indicator suggests that growth is running at around 3.5% yoy (broadly in line with our forecasts).

Most other real economy indicators were broadly unchanged this month (see table below). However, optimism regarding the outlook for exports improved sharply, probably reflecting a more optimistic assessment of global economic prospects. A net 43% of manufacturers expect to boost export sales - the strongest result since the 11 September tragedy.

Retailers' pricing intentions moderated slightly to +30 from +33 last month, but remains consistent with our expectation that CPI inflation will remain well above 2% this year. Economy-wide pricing intentions rose to +25 from +21 last month - the highest level seen since August. Year-ahead inflation expectations were stable at 2.7% for the fourth consecutive month.

A net 65% of businesses expect interest rates to rise, up from a net 42.7% last month. This survey was taken prior to the RBNZ's decision to begin the tightening cycle on 20 March.

Ends

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