New Zealand business outlook rebounds in Q2 fuelling rate hike speculation

[WELLINGTON] New Zealand's business confidence improved sharply in the second quarter suggesting a robust economic recovery over the coming year and sparking speculation of a sooner-than-expected rate hike.

A net 7.0 per cent of firms surveyed expected general business conditions to improve compared with a 13 per cent deterioration predicted in the previous quarter, the New Zealand Institute of Economic Research's (NZIER) quarterly survey of business opinion (QSBO) showed.

On a seasonally adjusted basis, 10 per cent expected business conditions to improve, better than 8.0 per cent pessimism recorded in the previous period. The survey's measure of capacity utilisation was 94.9 per cent from the previous quarter's 93.9 per cent.

Firms' own trading activity measure also picked up strongly, with a net 26 per cent of businesses reporting increased demand in the June quarter, compared with just 2 per cent expecting a rise in the previous quarter.

Labour shortages and supply chain disruptions are leading to a further build-up of capacity pressures and point to rising inflation, NZIER said.

"The increase in both costs and prices points to rising inflation pressures, which is underpinning expectations of interest rate increases from the Reserve Bank over the coming year," NZIER said in a statement.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

About 60 per cent of financial services sector firms now expect interest rates to rise over the coming year, it said.

The Reserve Bank of New Zealand (RBNZ) held interest rates in May but hinted at a hike as early as September 2022, becoming one of the first advanced economies to signal a move away from the stimulatory settings adopted during the Covid-19 pandemic.

RBNZ meets again next week to decide on monetary policy.

"These results reinforce our expectation that rate hikes are on the horizon - we've pencilled in February 2022, but risks are pointing towards sooner rather than later," ANZ Bank said in a note after NZIER's data was released.

REUTERS