Latest ANZ Business Outlook survey shows the economy is still very weak 'but things are starting to turn higher'

'The tide has turned' for the New Zealand economy, ANZ chief economist Sharon Zollner says.

Results of the latest monthly ANZ Business Outlook Survey show that while business confidence eased very slightly - from high levels - in November, the measure of expected own activity rose again.

Zollner said the improvement in experienced activity also continued, suggesting that interest rate cuts are changing actual behaviour, not just expectations.

"The economy is clearly still very weak, but things are starting to turn higher."

She said the survey "does pour cold water" on the idea of large emergency Official Cash Rate (OCR) cuts being necessary to "scrape the economy off the floor".

"There is real pain out there – and both unemployment and business failures are likely to continue to increase for some time.

"But those two measures tell you where the economy has been, not where it’s going. Firms are saying that things are looking brighter," Zollner said.

Commenting on the survey results, Westpac senior economist Michael Gordon said the surge in confidence in recent months has followed the rapid turnaround in the Reserve Bank’s stance, from warning about the possibility of an interest rate hike in May, to delivering 75 basis points of OCR cuts (at the time of the survey) with the strong likelihood of more to come.

"We’re forecasting a 0.2% fall in GDP for the September quarter, followed by a modest 0.3% increase in the December quarter. The RBNZ’s forecasts in yesterday's Monetary Policy Statement were identical to ours. While the business confidence survey has certainly been more ebullient than other high-frequency indicators, it generally supports our view of a return to modest growth in the economy," Gordon said.

Zollner said that in good news for the RBNZ, inflation expectations dropped markedly in the latest survey, likely influenced by the announcment of an annual rate of inflation of 2.2% as of the September quarter. Pricing intentions also fell as did the average amount by which they intend to raise them.

"Cost expectations over the next three months eased slightly. Both cost expectations and pricing intentions remain above pre-Covid levels but are trending in the right direction.

"Firms’ numerical estimates of their own costs over the next three months eased from 2.3% to 2.0%, falling for every sector except retail.

"Business inflation expectations have fallen much more quickly than those of consumers.

"Not only are inflation expectations falling – firms (like the RBNZ itself) are also becoming more certain about their expectations. That will help cement price-setting behaviour that’s consistent with inflation at target."

Zollner said that reported expected ease of credit is at "pretty much" a record high.

"Credit conditions are, by this measure at least, not going to be a significant constraint on the economic recovery."