Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

A lack of business confidence will cause RBNZ cuts

A lack of business confidence will cause cuts. RBNZ are likely to hit 50bps.


Key Points

• Business Confidence deteriorates along with profitability. Poor pricing intentions has cut inflation expectations. Businesses are worried.”

• RBNZ action has failed to spark the fire needed under business intentions. More work is required.

• The protracted, and worsening, malaise amongst business, is likely to induce another RBNZ response. We now expect another 50bps cut(s) to just 0.5%. And we wouldn’t rule out a 50bp in November. But it is the Government that must step up.

View PDF


Summary

The focus this week is all business, and confidence is crumbling. Businesses have highlighted weak demand, capacity constraints, (Govt) policy uncertainty, and poor pricing power as reasons to worry about profitability, reduce investment intentions, and lower inflation expectations. All of the above point to growth running at or around 1%, half the current run rate, and a third of what we need. The deterioration in business intentions demands a policy response. We will get a monetary policy response, but what we really need is a fiscal policy response. The Government continues to lie in wait through fear of breaking fiscal responsibility rules, that have proven irresponsible. So, we must expect the RBNZ to do more, with diminishing returns.

We now expect the RBNZ to cut to just 0.5%, and we see a good chance the bank delivers in just one move in November. The risk of another move, as bank capital requirements bite, to 0.25% is uncomfortably high, and will hurt savers.

The release of both the ANZ Business Outlook survey for September and NZIER’s QSBO for Q3, have disappointed. Both surveys were weak, and worsening. The surveys differ in their respective respondent groups, but unsurprisingly they are telling us the same thing. Firms are in a dispirited mood. Headline business confidence continues to linger around lows last seen during the GFC. But more concerning has been Firms’ outlook for their own activity, a leading indicator of GDP growth. The outlook for activity has continued to deteriorate. Both surveys show more firms than not anticipate falling activity into 2020. For the RBNZ, the forecast pickup in growth over the second half of 2019 may not materialise. Also, firms’ pricing intentions and inflation expectations are falling. A further policy response is likely to be needed to ensure inflation is on track to return to the RBNZ’s 2% target mid-point. We expect the RBNZ to cut the OCR by a 25bps to 0.75% in November. There is now a risk, of course, that the RBNZ delivers a 50bp move to 0.5% in November.

NZ business have gone from worrying about policy uncertainty following the last general election, to worrying about weakness in general conditions. Firms are now slowly losing the enthusiasm to hire and invest. Moreover, there is an inability among firms to pass on rising costs to their customers, and this has hammered profitability. Cost increases have come from policy change, such as the large hikes to the minimum wage, but also from capacity constraints and difficulty finding suitable staff – especially in the building industry.

To read more, please click here or open the pdf below.

View PDF


© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 




Air New Zealand: Employees Recognised With $1,000 Share Award

The efforts Air New Zealand employees made during one of the airline’s toughest years will be recognised via an award of $1,000 worth of company shares to all permanent employees... More>>

Consumer NZ: Bank Complaints On The Rise, Survey Shows

Nearly one in five Kiwis had a problem with their bank in the past year, Consumer NZ’s latest satisfaction survey finds. Consumer NZ chief executive Jon Duffy said the number of bank customers reporting problems had jumped to 18%, up from 11% in 2020... More>>

Federated Farmers: Applauds UK-Australia Free Trade Deal

News that Australia and the UK have signed a free trade agreement is a promising step forward in the fight against tariffs and protectionism, Federated Farmers says.
"It reinforces the international rules-based trading framework and is important for rural producers and global consumers," Feds President Andrew Hoggard says... More>>




ASB: New Zealanders Missing Out On Hundreds Of Millions In KiwiSaver Government Contributions

New Zealanders have just over a week to ensure they’re eligible for the maximum annual government KiwiSaver contribution... More>>


Stats NZ: GDP Climbs 1.6 Percent In March 2021 Quarter Following December Dip

Gross domestic product (GDP) rose by 1.6 percent in the March 2021 quarter, following a 1.0 percent fall in the December 2020 quarter, Stats NZ said today. "After an easing of economic activity in the December quarter, we’ve seen broad-based growth in the first quarter of 2021... More>>

Reserve Bank: Debt Serviceability Restrictions Added To Policy Toolkit

The Reserve Bank – Te Pūtea Matua and the Minister of Finance have agreed to update their shared Memorandum of Understanding (MoU) on macro-prudential policy and add debt serviceability restrictions to the list of potential tools available... More>>