ANZ economists are optimistic the Reserve Bank will be in a position to cut the Official Cash Rate 'considerably earlier' than August next year as the RBNZ currently expects

The latest ANZ Business Outlook survey for June is showing "renewed meaningful progress on bringing inflation pressures down", ANZ economists say.

And ANZ chief economist Sharon Zollner says while "there is still a long way" to go, she is optimistic that the Reserve Bank (RBNZ) will be in a position to cut the Official Cash Rate "considerably earlier" than August next year, as the RBNZ currently expects.

The ANZ economists' most recent estimate of when the OCR may be cut was February 2025, though they have not reiterated that particular forecast in the latest survey summary.

In terms of inflation indicators in the latest survey, Zollner said both cost expectations and pricing intentions "have now fallen off the plateau they were stuck on for eight to nine months".

"Inflation expectations also continue to steadily decline."

Pricing intentions fell 7 points to 35 and cost expectations fell from 73 to 69. Inflation expectations eased from 3.6% to 3.5%.

Zollner said average reported wage increases versus a year earlier rose, but expectations for wage settlements over the next 12 months fell by a similar margin.

In terms of 'headline' results in the survey, business confidence fell 5 points to +6 in June. Expected own activity was unchanged at +12, while past activity was flat at -18.

Zollner said the survey "remained weak" in the forward-looking activity indicators "with a marked decline in reported past activity”.

"Construction is experiencing the largest fall in activity versus a year earlier, followed by retail, but every sector except agriculture is reporting weaker activity than a year earlier."

While the GDP outcome for the first quarter of the year was a "barely respectable" 0.2% rise, the signals for June quarter GDP "are extremely weak".

"We have pencilled in a small decline at this early stage."

Westpac senior economist Michael Gordon, commenting on the survey results, said overall, the survey continued to suggest soft activity through the middle part of this year.

"We currently have a 0.1% decline pencilled in for June quarter GDP, but we’ll be reviewing this shortly. We note that the stronger-than-expected March quarter result was driven by volatile items that increase the odds of a weak result next time.

"The pricing measures will help to reassure the Reserve Bank that inflation is on the path back towards target. Even so, there is still some way to go, and the RBNZ will be wary of the risk of taking its foot off the brake too early," Gordon said.

Every third month the survey asks firms to rank their largest problems.

In the latest results inflationary problems (finding labour, high wages, high other costs, and regulation and paperwork) continue to decline in relative importance, ceding ground to the disinflationary problems of low turnover and competition, Zollner said.

“Interest rates have also grown as a problem.

"Low turnover is a particularly weighty issue for the retail and manufacturing sectors. The agriculture sector is by far the most concerned about non-wage costs and interest rates.

"The turnaround in labour shortages is evident across all sectors," Zollner said.

“The medicine is working. The economy is clearly weak, as the RBNZ intended, but more than that, we are finally seeing renewed meaningful progress on bringing inflation pressures down."

Earlier on Thursday the ANZ-Roy Morgan Consumer Confidence Survey was released, with the confidence measure easing 2 points in June. "At 83, confidence is miles below the 20-year average of 114," Zollner said of these results.

"Bringing it all together, consumer pessimism is consistent with the broader economic data that shows households are tightening their belts in the face of restrictive monetary conditions, a stagnant housing market, and a softening labour market."