Photo: RNZ / Nate McKinnon
A couple of knots have come out of the gale force winds businesses are battling but stubborn inflation pressures may justify tougher action from the Reserve Bank (RBNZ).
ANZ's monthly survey of business confidence shows a net 37 percent of respondents expect the broader economy will deteriorate this year, down from a net 48 percent in August.
The more closely followed measure of firms' view of their own prospects also improved with a net two percent of respondents expecting to be worse off compared with four percent the month earlier.
ANZ senior economist Miles Workman said other measures of activity, including capacity utilisation and investment intentions all lifted, albeit from a low base.
But inflation pressures remained intense, he said.
"Pricing intentions, cost expectations and inflation are at best a little off their peaks and remain very high."
Construction was the most upbeat sector, which was an unexpected reversal on the month earlier, he said.
Meanwhile, agricultural firms were the most pessimistic, amid fears that global economic growth concerns would dent demand for New Zealand's primary sector exports, Workman said.
Finding skilled labour was the biggest problem businesses faced, followed by non-wage cost inflation, high rates of pay and regulatory compliance.
"The Reserve Bank's biggest problem is that these are all inflationary problems," Workman said.
He said the economy was at a delicate juncture, with demand holding up amid the monetary tightening to date.
However, inflation pressures were easing at a glacial pace, which would justify further interest rate hikes well into next year, he said.
"We expect that the RBNZ will need to deliver a policy rate closer to five percent than four percent to get on top of inflation pressures."
Looking ahead, Workman said volatility would be the hallmark of the coming weeks and months.
"This could impact on both business and consumer confidence here in New Zealand, even if the causes are far away."
