New Zealand business confidence drops to seven-month low

A net 14.9% of respondents expect the economy to improve in the next year, down from 22.9% in March. — Bloomberg

WELLINGTON: New Zealand business confidence dropped to a seven-month low in April as high interest rates and a sluggish economy curbed household spending and company profits, according to an ANZ Bank survey.

A net 14.9% of respondents expect the economy to improve in the next year, down from 22.9% in March, the bank said yesterday in Wellington.

That’s the lowest reading since September. A gauge of how businesses view their own activity also fell to a seven-month low at 14.3%.

The result returns business sentiment to levels that coincided with recession in the second half of 2023, suggesting the economy will struggle to grow in the near term.

The Reserve Bank of New Zealand (RBNZ) has said it will keep monetary policy restrictive for a sustained period as it attempts to squeeze price pressures out of the economy.

The economy may eke out low but positive growth in the first quarter “but momentum is pretty shaky if this month’s results are anything to go by”, said ANZ New Zealand chief economist Sharon Zollner.

“The economy has indisputably weakened markedly in response to higher interest rates as the Covid-era excesses are unwound.”

Inflation indicators in today’s report were mixed, with consumer price index expectations little changed at 3.76% and more respondents expecting cost pressures to increase. Still, expectations for future wage settlements declined.

“This month’s survey had a fair whiff of cost-push inflation about it in a weak demand environment,” said Zollner.

“As long as the demand side of the economy remains constrained – and that’s certainly written all over this survey – the RBNZ can very reasonably hope that cost-push inflation pressures can wash through with little in the way of second-round effects.”

Still, inflation at 4% is a long way above the RBNZ’s 1% to 3% target band, and domestic inflation pressures have eased a lot more slowly than the RBNZ expected when it called a halt to interest rate rises in 2023, she said.

ANZ expected the official cash rate to remain at 5.5% until May next year. — Bloomberg