Business sentiment falls for second month

form, sign, business, cheque, writing, contractThe May business opinion survey saw confidence about the general economic situation drop back for a second month to 15.7 compared to 30.2 in April. There was also a fall in businesses’ expectations for their own activity, which was down to 32.6 from 41.3 in April.

According to RBNZ senior economist, Satish Ranchhod, the economy expanded at a solid pace in the early part of the year. “While it remains firm, we are seeing some signs that the pace of activity is easing back. Notably there has been softness in the agricultural sector, with Fonterra revising down its forecast payout for this season, and next season’s payout also likely to be subpar. Surprisingly, the business confidence survey also pointed towards some softening in the construction sector. This may be a result of a softening in activity in Canterbury, which is consistent with indications that residential reconstruction is now peaking, or it may point to the impact of capacity constraints in the sector,” he said.

“Looking into the underlying details of the survey, we see that businesses’ hiring intentions and investment intentions pull backed in May. Nevertheless, they remain healthy.”

Businesses’ inflation expectations fell to a historical low of 1.62 per cent in April. There was also modest pull back in the number of business planning on increasing their prices. In large part, the softness in these indicators of pricing pressure is a response to last year’s sharp decline in international oil prices, which has pulled consumer price inflation down to its lowest level in well over a decade. This softness in inflation expectation is an important concern for the RBNZ as it could contribute to long lasting softness in wage and price setting decisions.

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