Inflation trending downward
Business activity measures remained weak in June, while the inflation gauges are steadily heading in the right direction, according to the NZIER Survey of Business Opinion for Q2 2024.
Key results
- General business confidence: -35.4 (Previous: -24.9)
- Trading activity, past three months: -27.8 (Previous: -24.2)
- Trading activity, next three months: -10.4 (Previous: -12.3)
- % reporting a rise in operating costs over the past 3 months: 41.3 (Previous: 52.0)
- % who increased output prices over the past 3 months: 22.4 (Previous: 33.4)
Downbeat business sentiment
Businesses remained pessimistic about their prospects and the wider economy.
“A net 35% of firms were negative on the outlook for the economy in the June quarter, compared to a net 25% in March,” said Michael Gordon (pictured above), senior economist at Westpac NZ.
While still higher than last year, this is a weak reading historically.
Firms’ views on their own activity were mixed. Past performance was slightly weaker, but expectations were slightly higher. These measures, closely aligned with GDP, suggest growth remains marginal.
Labour market and inflation trends
Labour shortages have eased significantly, with firms indicating they are shedding workers rapidly.
“Workers have become much easier to find,” Gordon said.
On a positive note, inflation indicators are moving in the right direction. “A net 41% of firms reported cost increases over the last three months, down from 52% last quarter and a peak of 80% at the end of 2022," explained Gordon.
This trend aligns with expectations of inflation falling below 3% by year-end, though still above the 2% target.
RBNZ and OCR outlook
The NZIER survey supports Westpac’s view that the Reserve Bank (RBNZ) will start reducing the OCR from February next year, earlier than the RBNZ’s own projections.
Westpac will publish its OCR preview later this week, detailing expectations ahead of the RBNZ’s July 10 meeting.
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