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Adrian (Th)Orr will be happy about the latest business confidence survey results (Image: Tina Tiller)
Adrian (Th)Orr will be happy about the latest business confidence survey results (Image: Tina Tiller)

The BulletinJuly 5, 2023

Evidence suggests the inflationary beast is under control

Adrian (Th)Orr will be happy about the latest business confidence survey results (Image: Tina Tiller)
Adrian (Th)Orr will be happy about the latest business confidence survey results (Image: Tina Tiller)

Yesterday’s business confidence survey figures should kill off any talk of another OCR hike in the foreseeable future says an economist, with signs inflation is abating, writes Anna Rawhiti-Connell in this excerpt from The Bulletin, The Spinoff’s morning news round-up. To receive The Bulletin in full each weekday, sign up here.

Business confidence up slightly, concerns about sales rather than staff

Depending on which headline you read or where your primary concerns lie right now, the latest New Zealand Institute of Economic Research (NZIER) quarterly business confidence figures released yesterday were either good news or bad news. Realistically, they represent a mixed bag. On the slightly good news front, business confidence has grown, a little. The survey shows a net 59% of businesses expect a deterioration of business conditions, down from 63% last quarter. Retailers however are feeling less optimistic, with consumer spending constrained and a majority of businesses expecting a softening of demand in the coming months. Concerns about that and the cost of doing business emerged as a dominant theme, as workforce shortages become less of an issue. Last week’s ANZ business and consumer confidence figures were described more enthusiastically as a “solid bounce”. Bernard Hickey has a good summary of those survey results.

Strong evidence that inflationary pressures are abating

BNZ’s head of research, Stephen Toplis says there’s “next to no chance” of another official cash rate hike in the foreseeable future barring any shocks to the economy. BNZ’s research team sees the rate of inflation coming down to 4.5% by the end of the year. It was 6.7% for the year ending March 2023. Stats NZ will release the latest inflation data on July 19. Toplis said the Reserve Bank will be happy about the NZIER numbers. “It provides very strong evidence that inflationary pressures are abating and that we are heading towards maximum sustainable employment at an accelerating rate.”

Slowing economy could be bad news for the government’s books

The government opens its books today as Crown accounts for the eleven months ending May 31 are released. The last set, released in early June, showed the government’s operating deficit was 22% above Treasury’s forecast due to a shortfall in money raised from company tax. Toplis says the “moribund” expectations from businesses in the survey for future profitability are “bad news for business, future employment and investment but also for the government whose finances are already under pressure from a slumping corporate tax take.”

Productivity in New Zealand hinges on us working longer hours 

That note on investment provides a good segue into a new Productivity Commission report released on Monday. It shows that New Zealand has gone from being one of the most productive economies in the OECD to being one of the least productive. Productivity gains overseas can be pinned to investment in research and development, new technologies and products and machinery that reduce working hours but increase what is produced. The NZIER survey results point to businesses reducing investment, particularly in machinery. Productivity is an issue, alongside having something resembling a position on population growth, that really should be more central to election debates about the economy than it is. Perhaps it’s the language used. Outputs per capita and units are a bit alienating and inhuman, but the upshot is productivity gains in New Zealand rely on us working longer hours. We’re working harder, not smarter, so to speak. In other news, the 500 richest people in the world added $852b to their collective fortunes in the first half of this year according to Bloomberg’s billionaires index. Elon Musk and Mark Zuckerberg did particularly well. Plenty of spare cash to hire trainers for their supposed cage fight.

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