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Business confidence spiked despite global jitters

Australia Economic Research
New Zealand: business confidence spiked despite global jitters

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The headline reading on the NBNZ business confidence survey spiked to 50.1 in February from just 38.5 in December (there was no survey released in January). The result, the highest in over a decade, suggests that around half of those surveyed expect that business conditions will improve over the next 12 months. We had expected that sentiment would deteriorate in February, owing to rising global jitters and signs the recovery underway in New Zealand lost some momentum.

The important firms’ own activity outlook, however, continued to improve as expected, rising to 41.9 from 36.9, and reaffirming our view that the economy will continue to expand (chart).

Sentiment improved in most components of the survey, with a significant improvement reported in sentiment toward the labour market. Only 10% of those surveyed in February expect that the unemployment rate will rise in the next 12 months, down from 29% in the previous survey. A larger portion of those surveyed, compared to the December results, expect that profits, commercial construction, and livestock will improve. Significantly fewer respondents expect an improvement in the residential construction sector in the year ahead, however.

With respect to interest rates, the NBNZ reported that 69% of firms surveyed in February expected that the RBNZ would hike the cash rate in the next year, unchanged from the previous survey. Our forecast is for the first rate hike to be delivered in July. The first move will be a 50bp hike, as will the second in September, but the RBNZ will then shift down a gear to 25bp hikes thereafter. A string of weaker-than-expected data (prior to today’s remarkably strong business confidence release) and hints from RBNZ Governor Bollard that he wants assurance that the economy is out of the most fragile growth phase are the main reasons we expect the first rate hike to be delayed until 2H10.


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