ANZ NZ business confidence: good times can go on longer - ANZ

Analysts at ANZ noted that NZ Business confidence lifted in May.

Key Quotes:

"Broader survey gauges are very positive on the outlook for the economy.

Our composite growth indicator is pointing to 31⁄2-4% GDP growth.

Inflation expectations (finally) hit 2%.

A net 15% of businesses are optimistic about the year ahead. That’s up 4 points on the month prior and marks the first constructive step up since September last year. Sentiment lifted in manufacturing, retail and agriculture, was unchanged in the service sector, and fell in construction.

Our confidence composite indicator combining both business and consumer sentiment is pointing to pace-setting GDP growth of 31⁄2-4%.

Beyond the normal political hand-wringing (more offshore than on), firms have good reason to be upbeat. Commodity prices have recovered. The NZD is in a zone that looks broadly fair. Construction and tourism continue to boom. Interest rates are low. More arrivals (migrants) means more bums on seats. The spectre of higher interest rates (a net 61% think rates are set to move up) is not weighing on sentiment.

History shows that NZ could be ‘due’ a visit from the Grim Reaper in 2018. 2008, 1998, 1988, 1978 and 1968 were not great years economically. Some featured global events, but many were already self-induced corrections.

We are optimistic the pattern will be averted this time by the combination of housing shortages (we normally have an excess supply at this stage in the cycle), less exuberant consumer spending helping to tame inflation (keeping the RBNZ at bay), regulatory tightening (LVR restrictions), and banks reining in credit growth at the top of the cycle. It all means the good times can go on longer. Excellent! "