Data Flash (New Zealand)
NZ Quarterly Survey of Business Opinion - Quarter 4 2000
Key Points
The survey was conducted in late December and early January.
The level of trading conditions surveyed in Q4 is consistent with our estimate of quarterly GDP growth of around 0.5%.
Capacity utilisation in the manufacturing and building sectors increased marginally from 89.0% in late September to
89.1% in December.
Looking ahead, business confidence (regarding the outlook for the next six months) has rebounded sharply, consistent
with the monthly NBNZ surveys. A net 31% of respondents are optimistic, up from a net 45% who were pessimistic three
months ago. However, the optimism may be somewhat overstated, considering that most of the survey responses were
received prior to the Fed rate cut, which significantly increased the focus on the poor state of the US economy. The
change in sentiment appears to have been driven by the prospect of lower costs as a result of lower oil prices and the
10% rise of the NZD late last year. Furthermore, exports appeared to have increased beyond expectations in Q4.
Consistent with the improved activity outlook, there has been a rebound in investment and employment intentions.
The tightness of the labour market continued to be reflected in a further rise in the skill shortage indicator. Cost
expectations have moderated to a greater extent than intentions regarding price increases. That suggests a widening in
profit margins and is consistent with the expectation of a recovery in profitability.
Commentary The RBNZ received this survey well in advance of its OCR review meeting. Both the survey and last week's Q4
CPI result, which showed a significant rise in core inflation, provide a strong rationale for the Bank to resist calls
for a policy easing in the near future. While the weaker world growth profile will undoubtedly constrain the performance
of the domestic economy, the conditions for 3% GDP growth over the next year remain in place. With that real economy
backdrop, it is not guaranteed that core inflation will follow the expected rapid downward move in the annual headline
inflation rate to 1.5%. Lower petrol prices and the significant reduction in state house rentals are reinforcing that
trend. However, with the QSBO showing high capacity usage and tight labour market conditions, it is doubtful that core
inflation will fall below 2% without extra interest rate pressure. The RBNZ is focused on lowering the medium-term
inflation rate to around the mid-point of the 0-3% of inflation target range. Deutsche Bank expects that inflation
concerns will not only prevent the RBNZ from easing this year, but will lead the Bank to tighten in the fourth quarter
as favourable domestic trends get supported by a gradual recovery in world growth.
Ulf Schoefisch, Chief Economist, New Zealand,
This data flash is embargoed for media reporting until 1 am, 24 January 2001.
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