Photo: Unsplash/ Simon Kadula
Business confidence has taken a step back in the new year with signs that the slowdown in inflation has also levelled out.
ANZ Bank's monthly survey showed headline sentiment about the broad economic outlook has fallen eight points this month to 54 percent, while the more closely followed measure of firms' view of their own outlook dipped four points to 46 percent.
The confidence readings had been rising strongly through the second half of last year to decade highs amid hefty rate cuts by the Reserve Bank.
ANZ chief economist Sharon Zollner said businesses may be having a reality check and have accepted that lower interest rates would take time to filter through to improved activity.
"[It] certainly doesn't suggest the recovery in the economic activity has stalled, though firms may be reassessing how long they might have to wait to get back to a new 'normal'.
"Insofar as the slowdown was primarily caused by higher interest rates, lower interest rates should be an effective cure, but it will take time."
Zollner said the measure of how businesses were trading now compared to a year ago was positive, pointing to the economy having turned the corner.
Inflation challenges
However, the survey also showed a lift in inflation expectations and a rise in the number of firms experiencing higher costs and also intending to raise prices.
Zollner said the forces that had been pushing inflation lower looked to be petering out, which could in part be the weaker New Zealand dollar making imports more expensive.
But the positives were that headline inflation and expectations were in the Reserve Bank's 1-2 percent target band.
"Nonetheless, firms continue to report an environment of high costs."
She said another 50 basis point cash rate cut next month looked likely, but various uncertainties about inflation and supply side issues would probably make the RBNZ more cautious about further rate cuts.
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