Latest ANZ Business Outlook survey shows not only that optimism about the future continues to grow, but also the first signs of improvement in current activity

The economy’s response to lower interest rates "could be more vigorous than is generally expected", ANZ chief economist Sharon Zollner says.

The ANZ Business Outlook Survey (ANZBO) for September shows another sharp rise in business confidence and in expectations of future activity.

"Markets in particular are focused on downside risks, but this month’s survey showed not only that optimism about the future continues to grow, but also the first signs of improvement in current activity," Zollner said.

"A sharper rebound in economic activity than generally anticipated would of course be great news – as long as inflation still returns sustainably to target."

However, Zollner said the news was "mixed" on the inflation front in the survey.

"The proportion of firms intending to raise their prices in the next three months lifted for a third consecutive month. The average amount by which firms are expecting to raise their prices in the next three months at is also well off its June trough."

But in "good news" from the Reserve Bank's point of view, reported wage growth has dropped over the last six months, and "no doubt relatedly", cost expectations have dropped steadily as well," Zollner said.

“Now we’ll be looking to other data such as card spending, dwelling consents, and job ads to corroborate or challenge the themes from the ANZBO. While the market seems confident rapid rate cuts are coming, everything remains data dependent."

The RBNZ's next review of the Official Cash Rate - currently at 5.25% after a 25 basis point cut in August - takes place on Wednesday, October 9.

Westpac senior economist Satish Ranchod said the latest ANZ Business Outlook survey results "probably broadly match the RBNZ’s expectations, and likely won’t have changed their thinking ahead of next week’s policy announcement".

"Activity remains soft; inflation pressures have stabilised and are well down on the elevated levels we saw in recent years; and signs of a firming in growth over 2025 are starting to emerge.  Against that backdrop, we’re forecasting a 25bp cut in the OCR at next week’s RBNZ policy review," Ranchhod said.

BNZ head of research Stephen Toplis said the September ANZ Business Outlook survey was "unequivocally strong".

"If you were looking for a reason why the RBNZ should cut rates 50 basis points at its October meeting, this wasn’t it," he said.

Toplis said the RBNZ has indicated that the NZ Institute of Economic Research's Quarterly Survey of Business Opinion (QSBO) out on Tuesday, October 1, is "really important to it".

"We will now await this [QSBO] with strong interest. There is a good chance of some deviation between the two series because the QSBO asks about three month ahead perceptions not twelve month [as the ANZ survey does]. But if it too reveals stronger growth and higher inflationary pressures after just one rate cut there will be little reason for the RBNZ to accelerate the process."

In terms of the detail in the latest ANZ Business Outlook survey, business confidence rose 10 points to +61 in September, while expected own activity lifted 8 points to +45.

Experienced own activity rose 4 points to -19, led higher by retail and construction, but experienced employment fell 5 points to -20.

Inflation expectations were flat at 2.9%., ANZ's Zollner said.

"Business optimism continues to rise. Forward-looking activity indicators were higher again," she said.

"Reported past activity also lifted. It’s still very weak, but there was a turn higher in the hardest-hit sectors of construction and retail and it’s also notable that late-month responses averaged -9, compared with -22 at the start of the month.

"The net proportion of firms expecting higher costs and those intending to raise their prices over the same timeframe were stable. Both remain well above pre-COVID levels."

"Firms’ estimates of changes in their own costs over the next three months generally ticked lower but pricing intentions were mixed.

"Implied margin squeeze is retreating, which is no doubt feeding into improved profitability expectations, along with higher expected turnover.

"Reported wage increases versus a year earlier fell from 3.3% to 3.0%. Expectations for firms’ own wage increases over the next 12 months were flat at 2.7%."

Regarding the construction sector, Zollner said both forward and backward-looking activity indicators have lifted "markedly".

"Time will tell if activity will lift as strongly as anticipated (watch dwelling consents). Meanwhile cost, wage and price indicators for the sector are trending down."

Zollner said it was notable that when firms that are planning on increasing or decreasing their investment are asked what the main drivers of that decision are, interest rates don’t feature strongly. Rather, it’s the indirect impact on the economic outlook that is the deterrent.

"If firms in aggregate don’t actually think interest rates at these levels are much of a deterrence, and if confidence about the economic outlook continues to grow rather than petering out, that certainly raises the possibility that investment could recover more quickly than we or the Reserve Bank are anticipating."