Business pessimism is increasing, as strong inflation, rising interest rates and slowing construction activity weighs on sentiment.
The construction industry outlook was particularly downbeat with the outlook for residential construction deteriorating rapidly. Photo: 123RF
The ANZ Bank's monthly survey of business confidence shows a net 55 percent of respondents thought the broader economy will deteriorate this year, a 14-point fall on April.
The more closely followed measure of firms' view of their own prospects declined 14 points, with a net 5 percent of firms expecting to be worse off.
ANZ chief economist Sharon Zollner said inflation and cost pressures remain intense, with businesses expecting further cost increases.
However, the rate of increase in the measure of inflation expectations had eased over the month and the proportion of firms who expected to lift their prices in the next three months - which is a forward indicator of inflation - fell for the second consecutive month to a net 71 percent.
"Overall the data are consistent with CPI inflation peaking soon," Zollner said.
Firms were also expecting fewer wage negotiations with staff in the next 12 months, she said.
Across the sectors, the manufacturing, services and construction industries were particularly downbeat, while sentiment in the retail and agriculture sectors was more mixed.
Zollner also noted that the outlook for residential construction was deteriorating rapidly.
"The survey data suggests the issuance of consents (and ultimately, building activity) is about to fall sharply."
What was unclear, however, was how much of the fall was due to weaker demand, and how much was shortages of building supplies, she said.
Overall, Zollner said there was good and bad news within its latest monthly survey.
She said on one hand, the RBNZ would be pleased to see some signs that the upward pressure on consumer prices was easing and that the outlook for the red-hot construction sector was softening.
But on the other, margins were being squeezed and firms were increasingly worried about the economic outlook, with interest rates climbing and house price growth stalling.
She said the RBNZ still had plenty of work to do to rein in inflation and it was likely the official cash rate would need to be increased.
"We expect rate hikes will revert to a more standard 25 basis point pace from August onwards as the balancing act between medium-term inflation risks and near-term growth risks becomes more nuanced than it is currently."
