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June business confidence weakens amid domestic, global headwinds

Thursday 27th June 2019

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Business confidence has reversed the gains made last month amid on-going domestic and global headwinds, according to an ANZ Bank monthly survey. 

A net 38.1 percent of the 376 respondents to the ANZ Business Outlook expect general business conditions will deteriorate during the coming year, compared with 32 percent in May and 37.5 percent in April. A net 8 percent anticipate an improvement for their own businesses, compared to 8.5 percent a month earlier.

“The outlook for the economy is murky," ANZ chief economist Sharon Zollner said. "As things stand, there is no reason for the economy to fall into a deep hole. Commodity prices are good, interest rates are at record lows and the labour market is tight. But the economy is facing credit and cost headwinds and the global outlook is deteriorating."

On Wednesday, the central bank held rates steady at 1.5 percent but said risks are tilted to the downside and that more support from monetary policy will likely be necessary. 

Several indicators in the latest survey were unchanged from last month. On a net basis, no firms are expecting to shed staff, versus 0.3 percent that did in the prior survey. The number expecting to invest during the year ahead stood at a net 2.5 percent from 2.9 percent, while those expecting to increase their capacity utilisation was steady at 5.3 percent from 5.4 percent a month earlier. 

Profit expectations fell 3 points, with a net 12.5 percent expecting profit to decline. A net 40 percent of firms expect it to be tougher to get credit, down 4 points. 

Pricing intentions fell 6 points, with 23 percent now expecting to lift prices in the coming year - the lowest since April 2018. A net 49.7 percent expect higher costs, unchanged from the prior survey.

Zollner noted that commercial construction intentions rose 0.6 of a point to 4.8 percent and that residential construction intentions bounced back from to flat, compared to a net 27.3 percent of respondents in the prior survey who had been expecting reduced activity.  

“Residential building intentions rebounded to zero but continue to suggest a marked fall in building activity. A net 12 percent of firms in the construction sector are intending to cut jobs, and the sector has the weakest profitability expectations across the economy too," she said.

The Reserve Bank this week noted downside risks to its targets for 1 to 3 percent inflation and sustainable employment. Annual inflation stood at 1.5 percent in the March quarter. 

"Upside risks to growth appear few and far between," ANZ's Zollner said. "With the inflation outlook not consistent with the target midpoint we expect two more official cash rate cuts this year.”


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