Business confidence has eased from its 20-year high but
remains elevated, the latest NZIER Quarterly Survey of Business
New Zealand Institute of Economic Research chief economist
Shamubeel Eaqub said the moderation was widespread across
indicators and sectors.
Confidence fell from more than 50% net optimists in the six
months ending March to 33% in the three months ended June.
''Businesses are positive about the outlook but are seeing
slightly weaker growth than recent experience and
Domestic trading activity - which closely mirrored GDP growth
- eased from 24% to 15%, consistent with annual economic
growth moderating from 3.8% in March to a still-healthy 2.8%
in June, he said.
Firms did not anticipate the level of moderation in the last
The survey showed solid levels of activity across all regions
in the June quarter, but the momentum had eased in the past
three months in some regions, Mr Eaqub said. In rural
regions, part of the loss of momentum was due to softening
In Auckland, the driver was less obvious but might relate to
concerns about the housing market.
Firms were beginning to raise prices at a faster pace,
indicating consumer price index (CPI) inflation of around
2.5% by the end of the year, he said.
Capacity pressures were emerging with more firms reporting
capacity and labour shortages as increasing constraints to
growing production and sales.
''The Reserve Bank will be unlikely to change its mind on the
pace of tightening monetary conditions based on our survey
results,'' Mr Eaqub said.
ASB economist Daniel Smith said the survey, along with the
monthly ANZ measure of confidence, both showed confidence
getting to ''exceptionally high'' levels late last year and
early this year.
Those levels were unlikely to be sustained. Rather than
getting overheated, business confidence now suggested the
economy was on a more sustainable path of growth of about 3%
to 4% per year.
The key questions now were how much inflationary pressure
would build up as activity expanded and how much of an impact
the Reserve Bank's official cash rate rises would have on the
economy, he said.
''If recent business confidence surveys are anything to go
by, higher interest rates are already having an effect on
"Today's data also suggests inflation is under control.''
The rate of inflation appeared it would increase gradually
over the coming year. However, businesses were under very
little pressure from higher costs at present.
Despite strong employment growth, the supply of labour was
also keeping wage growth contained, Mr Smith said.
At a glance
• Business confidence fell in June but healthy level of
• Inflation pressures still look contained with cost
pressures still muted.
• Higher interest rates appear to be doing their job.
• The pace of OCR rises is likely to slow from here