National Bank Business outlook shows confidence about economy slumped in August, but managers remain confident about their own businesses

ANZ National's Business Outlook survey of business confidence for August showed businesses are much less confident about the overall economic outlook, but remain relatively buoyant about their own businesses.

ANZ Chief Economist Cameron Bagrie said the survey's composite growth indicator remained robust, pointing to an annual GDP growth rate of 4.5% by early next year.

Here are Bagrie's comments below, and our interactive chart for confidence about the wider economy is below that:

Business sentiment appears schizophrenic. Business confidence dropped 13 points to a net 34 percent of businesses expecting better times for the economy over the year ahead.

Encouragingly, firms’ own activity expectations barely budged in the month, with a net 43 percent of businesses expecting an uplift in activity for their own business over the year ahead. This is well above the historical average of +26.

The resilience in the own activity reading is telling. Ultimately it is what businesses think about their own business prospects, as opposed to the general economic environment, that is the more reliable indicator. Cautionary tones are nonetheless apparent.

The sacrificial pawns in this month’s survey have been profit, employment, investment and export intentions. All slipped by modest amounts, foretelling greater caution, while remaining firmly positive. Our composite growth indicator (based on a weighted combination of activity, profits, employment and investment) remains robust. It’s pointing to 4½ percent year-on-year GDP growth by early next year.

The inflation outlook is becoming murkier. One year ahead inflation expectations jumped 0.3 percentage points to 3.5 percent — a level not seen since November 2008. Conversely, pricing intentions, looking 3 months ahead, eased. A net 21 percent of businesses expect to be lifting prices over the months ahead, down from +29 in July.

New Zealand’s prospects are inextricably linked to what happens overseas, and August was a tumultuous period across markets globally. Given that backdrop, we are not surprised to see greater caution evident in local business sentiment. Yet we are also masters of our own destiny. Locally we often bemoan our short election cycle and the dynamics of MMP.

Yet relative to peers overseas (events in Europe and the US being cases in point) our political institutions and participants are decidedly virtuous. Witness the broad consensus in regards to fiscal austerity and savings in New Zealand, areas where the global economy is looking for leadership, but is being dragged through the muck by populism. Suddenly New Zealand may have found the long-sought economic solution for raising our ranking across the OECD with respect to our living standards and GDP per capita.

We’re not doing anything special. Rather, we’re doing the basics well while watching others potentially botch it up. It’s not the ideal way to lift our ranking, but we’ll take it!

See our interactive chart on businesses' own activity outlook here.