"It's all starting to look like stagflation on steroids," bank says
A new business confidence survey has suggested that recession “could come faster and be much deeper” than expected, which according to BNZ was “the worst of all worlds.”
In a research note, BNZ said the latest quarterly survey of business opinion from the New Zealand Institute of Economic Research (NZIER) suggested profits were “collapsing” and hiring intentions were down – this as businesses continued to face extremely elevated costs pressures, extreme difficulty in finding labour, and with their expectations of price rises as high as ever.
“It’s all starting to look like stagflation on steroids,” BNZ said, according to a Stuff report. “There is no sign inflation is abating in any meaningful way, yet the survey adds more weight to our long-held argument that the economy is headed for recession. Moreover, that recession could come faster, and be much deeper, than many care to believe.”
Kiwibank, too, believed the decline in business confidence made recession more likely and showed how spooked businesses had been by the Reserve Bank’s tough talk and action in November.
Business confidence plunged to its lowest level since the NZIER started the survey in 1970, on a seasonally adjusted basis.
The NZIER survey found that a net 73% of businesses expect conditions to worsen over the coming months.
“Business confidence is the weakest in the history of the survey,” said Christina Leung, NZIER principal economist. “Firms have become much more cautious and are now looking to reduce staff numbers.”
A net 9% were expecting to cut staff early this year, according to the NZIER survey, which also suggested that wage pressures would remain elevated over the coming year, due to acute staff shortages.
NZIER also found that a net 13% of the firms experienced a decline in their own business activity over the previous quarter, which was the weakest result since the COVID level 4 lockdown in the June quarter of 2020.
A net 33% of those surveyed, meanwhile, said they expected a decline in their own activity in the coming quarter.
“Firms have also reduced investment plans substantially, particularly when it comes to investment in buildings,” NZIER said.
The institute said retail businesses were feeling “very downbeat.”
According to ANZ, “the big worry” in the data was that it showed costs and pricing lifting last quarter and in the current quarter.
“That’s going the wrong way and suggests near-term inflation pressures remain acute and far too high for the Reserve Bank to call these data ‘comforting,’” the bank said.
The survey was administered from Nov. 28 to Jan. 9, which meant it captured the impact of RBNZ’s hawkish monetary policy statement on Nov. 24 as well as Governor Adrian Orr’s admission that the central bank was trying to engineer a recession to put inflation under control.
Leung said the survey indicated a heightened risk of a recession, Stuff reported.
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