New Zealand economic update
NZIER 2Q Business Opinion Survey
The NZIER Quarterly Survey of Business Opinion (QSBO) for 2Q showed a net 64% of firms expect the economy to deteriorate
in the next six months, the same amount as in the previous survey. Negative economic growth and elevated inflation were
the key themes of the survey, which suggested that economic momentum slowed further in the June quarter. In the March
quarter, the economy contracted 0.3%q/q.
A net 18% of firms reported a decline in their own activity in 2Q, the lowest since June 1998, and a net 18% expect
activity to fall in the next three months, the lowest since December 1982. Our forecast currently calls for GDP growth
of -0.1%q/q in 2Q and +0.1% in 3Q. Following the QSBO survey, however, there appears to be downside risks to our third
quarter GDP forecast and an even greater risk of a recession in the Kiwi economy.
On the upside, there was a slight improvement in sentiment about the general business situation, with a net 54% of firms
expecting that the general business situation will deteriorate in the next six months, compared to 56% previously. The
1Q reading was, however, the highest since December 2005.
The survey signaled that inflation will remain persistently high. Resources remain stretched. Capacity utilization was
92.4%, down only slightly from 92.6%, and a net 49% of firms intend to increase selling prices in the next three months,
up from 45%.
But, suggesting further weakness in the labour market, a net 6% of firms intend to decrease staff over the next three
months, compared with 0% previously, despite that most respondents noted that it had become easier to find skilled and
unskilled labour. Labour market conditions loosened in 1Q, with employment contracting and wage growth easing
unexpectedly.
A net 8% of firms expect interest rates to be lower over the next year, a stark contrast from the 56% that expected
higher rates in the previous survey. Our forecast calls for the RBNZ to start cutting interest rates in September. We do
acknowledge that there is a risk of a July rate cut, but believe that the RBNZ will want to see further data before
embarking on an easing cycle. In particular, RBNZ officials will be searching for evidence of whether the recent
weakness in employment will be sustained. The employment print is scheduled for release on August 7.
ENDS