By Lucy Craymer
WELLINGTON (Reuters) -New Zealand’s business confidence improved in the second quarter, a private think tank said on Tuesday, amid indications that inflationary pressures were easing.
A net 22% of firms surveyed expected general business conditions to improve compared with 19% optimism in the previous quarter, the New Zealand Institute of Economic Research’s (NZIER) quarterly survey of business opinion showed.
“We continue to see the divergence between firms experiencing weak demand and firms expecting a recovery in demand,” NZIER said in its report.
“Although the sharp interest rate cuts since August last year have boosted confidence, the effects of lower interest rates remain slow to flow through to a lift in real activity,” it said.
On a seasonally adjusted basis, 27% expected business conditions to improve versus 23% optimism recorded in the previous period. The survey’s measure of capacity utilisation fell to 89.4%, from the previous quarter’s 90.5%.
The survey noted that cost and pricing indicators suggest an easing in inflationary pressures in the June quarter with a net 1% of firms reporting they had reduced prices in the June quarter. In the previous quarter, a net 8% of firms had raised prices.
“These indicators suggest that inflation will be contained in the near term,” Christina Leung, Principal Economist at NZIER said at a press conference.
She added these results suggest downside risk to the think tank’s forecast that inflation will be at 2.4% in the second quarter.
This should be good news for New Zealand’s central bank, which has cut the cash rate by 225 basis points since last August as inflation has come back within its target band of 1% and 3%. It has signalled that it will cut the rate at least once more in 2025.
Leung said overall, the results paved the way for another 25-basis point official cash rate cut in this cycle.
(Reporting by Lucy Craymer; Editing by Chris Reese and Jamie Freed)
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