Economic challenges persist
BNZ chief economist Mike Jones (pictured above) highlighted the increasing concerns among firms regarding the economy, as evidenced by both surveys and recent client discussions.
“Concerns about the state of the economy are creeping up to the top of firms’ list of challenges,” Jones said, reflecting a sense of unease permeating the business environment.
Downturn in key economic indicators
Recent economic indicators suggest a continued contraction across various sectors:
- Retail card spending decreased by 0.7% month-on-month in March.
- ANZ consumer confidence fell by 5% in April, halting a tentative recovery.
- The decline extends to the housing market, with March showing stagnant house prices and high inventory levels.
- Employment figures are also concerning, with a 0.2% quarterly drop in Q1 and negative outlooks from firms regarding future staffing.
Fragile economic recovery
Despite some signs of stabilisation in business confidence and sector-specific indicators earlier in the year, the overall economic momentum is weakening.
“The earlier normalisation in business confidence and perk up in the PMI/PSI, for example, had tended to support the idea that economic activity might sputter back into life over the second half of the year,” Jones said.
However, these expectations are now being revised downward as the economic recovery shows signs of faltering.
Global and domestic financial outlook
Jones also touched on the global economic situation, noting some positive developments from China and Asia, which may support the struggling Chinese property market and provide a slight uplift to regional growth expectations.
Domestically, the expectation is that the Reserve Bank may start reducing the official cash rate (OCR) as early as November, ahead of previous forecasts.
“We haven’t changed our view that the Reserve Bank will be in a position to start lowering the OCR in November,” Jones said.
Inflation and currency trends
Inflation remains a critical concern, with services inflation notably high at 5.3% year-on-year, though there are signs of deceleration. The New Zealand dollar’s recent depreciation adds another layer of complexity to the inflation outlook but could help rebalance the economy by supporting export revenues, BNZ reported.
To read the BNZ analysis in full, click here.
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