Business Confidence On The Road To Recovery

Data Flash (New Zealand)

The latest NBNZ business survey shows a recovery in confidence from -18% (net respondents) to -2%.

Similarly, firms' expectations regarding their own trading prospects have recovered, from +16% to +28%, with a rise from + 17% to +26% if usual seasonal variations are being taken into account.

The trading prospects series has historically been a good indicator of activity going forward (see chart). Its current level may suggest that GDP will not slow as much (to around 1.5% yoy) as assumed by the RBNZ and by us in the macroeconomic forecast updates released over the past month.

Improved sentiment is also reflected in investment and employment intentions, as well as profit expectations. The rebound in export expectations is particularly noteworthy considering continued global uncertainty. The improved assessment of the residential construction market from +10% to +31% is consistent with other information pointing to increasing buoyancy in the housing market. In line with improved sentiment and activity expectations, retailers' pricing intentions showed a renewed rise from +23% to +29%. That may suggest that there could be more resistance to inflation swiftly falling back to 1.5% than previously thought.

Overall, this survey confirms our central view that the RBNZ's easing cycle has come to an end.

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