Business confidence picked up a bit in the June quarter, but Middle East tensions and higher fuel prices remained on firms’ minds.
Key results (seasonally adjusted)
- General business situation: +12 (Prev: +1)
- Trading activity, past three months: +1 (Prev: 0)
- Trading activity, next three months: +10 (Prev: +13)
- Average selling prices, past three months: +37 (Prev: +23)
- Average selling prices, next three months: +52 (Prev: +43)
The NZIER’s June quarter survey of business opinion showed a modest lift in confidence as the tensions in the Middle East eased. Sentiment about the general business situation rose to a net 12% positive, compared to a net 1% in the March survey. However, the own-activity measures, which tend to have a closer correspondence with GDP growth, were little changed for the quarter.
As in the March quarter, the fast-moving events in the Middle East meant that the averages in this survey hide a lot. While the survey period ran from 10 June to 7 July, nearly all of the responses were received on two dates: on the 10th when the survey was sent out, and on the 17th after the signing of the Memorandum of Understanding between the US and Iran. For general business sentiment, early responses were a net 5% negative, while the second batch were a net 20% positive. With the renewed hostilities this month, the first batch of responses is probably more representative of where sentiment would stand if the survey was re-run today.
Other activity indicators were mixed. Investment and hiring intentions were less negative than in the March quarter, while profitability was expected to worsen further.
Conditions remain mixed across industries. Manufacturing remains relatively upbeat, buoyed by strong export sales, but respondents were more negative about the quarter ahead and noted a particularly large increases in their costs and sale prices. The building industry was a little more positive this quarter, but reported that they have continued to cut their prices despite soaring costs. Merchants (wholesalers and retailers) remained positive, but less so than last quarter.
The rise in fuel prices since March was clearly reflected in the pricing measures of the survey. A net 41% of firms reported raising their prices in the last quarter, up from 22% last quarter the highest reading since September 2023. In the next three months, a net 54% of firms intend to raise their prices, the highest since March 2023.
For the RBNZ, the implications of the survey are unclear. While it’s not surprising that a number of firms would be looking to pass on the rise in fuel and other costs, the short horizon for the survey questions (three months ahead) means that it doesn’t tell us a lot about the potential for second-round inflationary effects. And while the activity measures improved in some places, they don’t really seem to support the RBNZ’s assertion that the economy has been running stronger than they expected in their May MPS forecasts.
