Kiwi business confidence continues to surge
• Business confidence jumped again in August
• Prolonged recession nearing an end
• Employment expectations remain ‘in the red’
The NBNZ business confidence survey jumped an impressive 17.5 points in August to 34.2 (J.P. Morgan 24). We had expected
a significant gain due to improved global economic conditions and stronger than anticipated retail spending. Today’s
report, however, exceeded even those upbeat assessments. Almost all components of the survey registered increases: the
all important firms’ own activity outlook was most notable, surging to a five-year high of 26.0 from 12.6. This raises
our conviction on the likelihood of the New Zealand economy exiting recession in the second half of 2009.
Profit expectations, capacity utilization and investment all improved, indicating that the bottom line finally is being
repaired as Kiwi firms endure what probably was the seventh straight quarter of recession. Inflation expectations
declined moderately, in contrast to last week’s RBNZ inflation expectations survey, which surprised on the upside. This
inconsistency is indicative of uncertainty surrounding the currency. Elevated NZD is putting downward pressure on
inflation, though RBNZ rhetoric increasingly has been focused on forcing down the currency to be more closely aligned
with economic prospects, and to improve export competitiveness.
With respect to this, the NBNZ survey indicated a net 31% of respondents expect interest rate hikes in the next 12
months, up from 23% in July. While the likelihood of near-term rate hikes has increased, on our forecasts further
weakening in the household sector will see rates on hold until mid next year. Unemployment, in particular, which we
forecast to peak at 8%, is the biggest headwind facing consumers. The employment expectations component of the NBNZ
survey improved in August, but remains in negative territory, indicating a consensus view that further deterioration in
labour market conditions is likely.