Business confidence bounces back slightly
The struggle is far from over for many businesses in New Zealand.
ANZ’s Business Outlook is a survey which measures the confidence of businesses in their own situation, and how the labour market and exports are tracking. Over the last couple of years, the survey results have been quite dramatic as they reflect the reaction of businesses over twists and turns of the pandemic.
The March 2022 business outlook response is no exception to the drama. The collapse of confidence seen at the beginning of the pandemic was followed by a bounce-back until mid-2021. This was on the back of New Zealand feeling confident that it could carry on as long as Covid-19 was kept out of the country. As it became apparent it was not going to be that simple, in the latter half of last year, confidence again took a nosedive.
The March 2022 survey showed a very minor bounce back in confidence from January levels, as the impact of omicron has not brought total ruin to the economy. However, this is not even close to the 2020 bounce back. The economy is definitely lacking air and appears to have some leaks in need of patching.
The economy is definitely lacking air.
There are some positive indicators hidden in the survey. Export intentions are looking good, which is in line with healthy demand for New Zealand products overseas. Employment intentions are high, though this means upward pressure on wages to match the demand for skills.
Cost increase expectations are very high, notably in the agriculture and construction sectors. The intention to pass on these costs is strongest in the construction sector, while the agriculture sector has less pricing power to do so. All sectors are anticipating their profit margins to shrink. Residential construction intentions took a 21.9 percent nosedive from January levels.
As a sign of the times, inflation expectations are staggeringly high at 5.5 percent. The Reserve Bank of New Zealand’s target two percent feels a long way off.
The survey also ranks the most significant problems firms are facing. The second quarter of 2020 showed the drastic impact of the first lockdowns on businesses. Low turnover and cashflow from debtors became prominent problems in that period. Since then, the growing concern has been non-wage cost inflation. Finding skilled labour remains an ongoing issue.
The construction sector is struggling the most to find skilled labour. Unsurprisingly, agriculture is far more concerned, than other sectors, about increased regulations and the cost of inflation. Retail suffers from low turnover as consumers are wary of spending their discretionary income.
The current pressures on consumers, especially the startling rise in the cost of living (we have an explainer here), are reflected in the ANZ-Roy Morgan consumer confidence index.
Consumer confidence is at its lowest since ANZ and Roy Morgan New Zealand started measuring it in 2001. The index measured 81.7 for February 2022, just lower than confidence score of 82 in mid-2008 during the throes of the global financial crisis. Typically, the index sits in the 110s to 120s outside of crisis conditions. The businesses which are able to pass their increasing costs to customer’s likely will, which will exacerbate the already tightening pressure on household’s purchasing capability.
Consumer confidence is at its lowest.
Business confidence might continue to increase over the next few months, particularly if acquiring skills becomes easier with border restrictions easing. On the other hand, if many Kiwis decide to jump ship for better opportunities overseas, things will get harder in this space. It is quite apparent inflation is hurting consumers and businesses alike, and it is a difficult problem that will need collective effort to solve.