A dip in business confidence and growing cost pressures in early April shows that “stresses and strains in the economy are starting to show”, ANZ chief economist Sharon Zollner says.
The bank reported that business’ confidence in the economic outlook slipped 4 percentage points in the first week of April, with a net 8 per cent of business owners pessimistic.
The drop followed a 7 percentage point decline in business confidence in March.
The proportion of firms reporting that they employed more staff than a year ago fell 2 per cent and there was also a drop in the expected availability of credit.
Other economic data had also started to soften in recent weeks with consumer confidence, retail sales and February building consents all also falling, ANZ noted.
The biggest disappointment had been December-quarter GDP falling 1 per cent, the bank said.
However, confidence in firms’ own outlook held steady in its latest survey, with a net 16 per cent positive.
The Auckland Business Chamber said a separate survey it conducted suggested small and medium-sized businesses had a gloomy outlook for the next six months, indicating the economy had “plateaued”.
Chief executive Michael Barnet said the survey did not paint a rosy picture, with only 20 per cent of respondents thinking the economy would be better in the next six months than in the past six months.
That was “drowned out” by the 57 per cent that expected a deterioration, he said.
Credit ratings agency Fitch appeared to have a slightly different take on the economic outlook in a report it posted on Thursday.
It expected the country’s trade deficit to widen this year to 1.2 per cent of GDP, up from 0.8 per cent last year, “as domestic demand recovered” causing imports to rise faster than imports.
Zollner said ANZ had not changed its own economic forecasts as a result of the Government’s decision to open a trans-Tasman bubble this month.
Although ANZ believed New Zealand “should come out winners” from the bubble, the implications were a mixed bag, she said.
The retail industry had been massively boosted by everyone spending money they might otherwise have spent on overseas holidays in New Zealand “so that is an immediate headwind for retail”, she said.
Barnett said he was perplexed that 17 per cent of respondents to its survey believed the bubble would hurt their businesses “with the concern perhaps that money will be spent elsewhere but not here”.
Cost and inflation pressures remained “intense”, ANZ said in its report.
”Pricing expectations hit a new high, in data that goes back to 1992.
“Cost expectations data only goes back two years but also hit an eye-watering high with a net 75 per cent of respondents expecting higher costs,” it said.
Subdued profit expectations suggested that although many businesses planned to increase their prices, they were not confident they would be able to fully recoup their higher costs by doing so, Zollner said.
A net 4 per cent of firms were expecting lower profits, the bank found.
“Rising costs are an economy-wide issue,” Zollner said.
“Shipping disruptions, rising global commodity prices, the higher minimum wage, and skill shortages are creating something of a perfect storm.”
ANZ is forecasting the Reserve Bank will leave the Official Cash Rate unchanged at 0.25 per cent when its monetary policy committee meets next week, saying it would probably ignore rising costs as although they were inflationary, they were “not growth friendly”.
‘Stresses and strains in economy’ starting to show as confidence dips, ANZ warns