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Business confidence slips to new 10-year low in September

Monday 30th September 2019

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Business confidence slipped further in September and the central bank will be disappointed its 50 basis point rate cut in August doesn't appear to be having much impact, ANZ Bank said in its monthly business outlook survey.

A net 53.5 percent of the 391 respondents expect general business conditions will deteriorate during the coming year, compared with 52.3 percent in August.  

Firms' optimism about their own activity also fell, with a net 1.8 percent now expecting things to get worse compared with the net 0.5 percent in the prior survey. It was the fourth fall in a row and is the lowest read since April 2009. 

“Most ANZ Business Outlook activity indicators fell again in September. The moves were relatively small in most cases, and are the continuation of a theme,” said ANZ chief economist Sharon Zollner.

Last week, the Reserve Bank of New Zealand left its official cash rate unchanged after slashing it 50 basis points to 1 percent on Aug. 7. It would be disappointed the August cut "does not appear to have had much impact on business sentiment or investment and employment intentions," said Zollner. 

Investment intentions fell 5 points to a net 8.9 percent expecting to reduce investment. Profit expectations fell 5.1 points to a net 24.6 percent expecting profits to decline, the lowest since April 2009. Employment intentions rose 1 point to a net 7.8 percent of firms intending to reduce employment.

She also noted that weakness in key inflation indicators is re-emerging. Inflation expectations slipped again, and at 1.63 percent percent are now well below the 2 percent mid-point of the RBNZ’s CPI inflation target band.

They were over 2 percent just five months ago but are now the lowest since December 2016.  "Declining inflation expectations were cited as a reason for the large OCR cut last month," she said.

Pricing intentions fell again, and are the lowest since October 2016. Only a net 18 percent of firms expect to raise their prices over the coming three months, even though a net 47 percent are reporting higher costs

“The combination of high cost pressures but limited pricing power is showing up in expected profitability and weak investment intentions," said Zollner. 


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