Christina Leung: NZIER deputy chief executive on the latest Quarterly Survey of Business Opinion indicating confidence has returned to sector

NZIER's latest Quarterly Survey of Business Opinion (QSBO) shows a marked improvement in business confidence in the September quarter.

A net 5 percent of firms expect a deterioration in general economic conditions over the coming months - a significant drop from the net 40 percent that expected a downturn three months ago.

NZIER deputy chief executive Christina Leung says demand was quite weak over the September quarter, but expectations have gone up for the subsequent months.

"Expectations for the next quarter are looking more positive, and that's particularly the case for sectors such as retail and services - to the extent that these are the sectors that are more exposed to the household sector."

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Episode Transcript

Speaker 1 (00:00):
And signs of optimism among New Zealand's retail sector. The
latest Ensediar quarterly survey of business opinion shows owners are
less pessimistic about the economic outlook. So it now sits
at just five percent five percent expecting deterioration in our
economic conditions compared to forty percent three months ago. So

(00:20):
that's a thirty five percentage point turnaround. Indediar says the
results could make a case for another official cash rate
cut next week. Christina Jung is the Enzediar Deputychef Executive
and is with us this evening. Good evening, kyoder. Hey,
we'll get onto the sentiment data in a couple of minutes,
because I know that'll come as good news to a
lot of firms out there. But let's start off with

(00:40):
the latest trading data. What do your numbers say about
demand over the last quarter.

Speaker 2 (00:46):
So our latest enda A quarterly serve our Business Opinion
does show that demand in the September quarter remained weak,
with a net thirty one percent of firms of reporting
that day base reduced activity in the September quarter.

Speaker 1 (00:59):
Right, okay, and how is that likely to change over
the next three months?

Speaker 2 (01:04):
When we look at expectations for the next quarter. Though
even though right here, right now, across a wide range
of measures, firms are reporting quite weak demand in the
September quarter, expectations for the next quarter are looking more positive.
And that's particularly for the case for sectors such as
retail and services, to the extent that these are the

(01:25):
sectors that are more exposed to the household sector, we
see the impact of law interest rates as having more
of a positive impact on these areas.

Speaker 1 (01:35):
Yeah, I mean, that's that is a remarkable shift. So
you've gone from well thirty one percent of firms reporting
a decline in activity in the in the quarter to September,
but two percent of firms are expecting weaker activity in
the next quarter. So you know that that is a
massive shift. And what about ninety five percent of that
is down to the oci.

Speaker 2 (01:55):
While we don't dwelve into US firms the reasons for
how they're expecting or feeling the way they do. What
we have seen also over the quarter is that when
we ask firms, particularly we have financial services firms their
expectations for interest rates. An overwhelming majority of firms are

(02:15):
expecting low interest rates for the coming year, and the
fact that we're seeing this recovery and sentiment most apparent
in the retail and services sector. It does suggest that
the impact of interest rates are having more of an
immediate impact on these the house sector, for which these
sectors will tend to be.

Speaker 1 (02:33):
More exposed, right, So what sectors are less exposed to
the household sector than it and perhaps feeling a bit
more downbeat or pessimistic.

Speaker 2 (02:42):
So we do see the building sector and also the
manufacturing sector remains fairly downbeat. For the building sector, that
reflects the fact that construction demand is still pretty weak.
And also when we ask architects what their expectations are
for construction work based on work in their own office,
we can see that the pipeline across our housing, commercial

(03:04):
and government construction work a week for the coming year.
There are signs of an improvement beyond the coming twelve months. Though,
when we are ps architects in two years time what
they're expecting in terms of that pipeline of construction work,
there's actually an improvement. Expectations of improvement for housing and
commercial construction.

Speaker 1 (03:23):
Okay, is that just down to the lag in the
monthtary policy cycle? You know, basically it takes the time
for the full weight of those and distrate cuts to
be felt across the economy.

Speaker 2 (03:34):
We would say part of that is the reason. Also,
for example, if we look at the fact that we're
firms asking them about hiring and investment intentions, despite the
fact that their firms are expecting demand to pick up
in the next quarter. When we ask them about their
intentions expansion plans, for example, in investment, we can see

(03:54):
that firms remain quite cautious. For example, a quarter of
firms are expecting to reduce investment in buildings over the
coming year. So that does suggest that while there is
that expectations or hope optimism that things will improve in
the next quarter when it comes to actually putting in
place expansion plans. Until that our firms are feeling more

(04:18):
conviction of a sustained improvement in demand, we do expect
that that caution towards towering and investment will remain.

Speaker 1 (04:26):
So go back to that headline figure net five percent
of firms expected deterioration in general economic conditions over the
coming months. Compare that though the net forty percent from
the Dune quarter. What does this mean for the oc
artists next week?

Speaker 2 (04:40):
So in terms of the rebound we can in terms
of that recovery and business confidence, it is looking quite
a more postive picture for the news and economy. Also
the fact that in this latest end are call less
about business opinion. We're seeing a continue easing in inflation indicators,
and that's particularly the case when it comes to pricing pressures.

(05:03):
That's driven by the fact that in this week, demand
environment booms in the manufacturing, building and retail sectors report
that they cut prices in the September quarter, with the
Reserve Bank highlighting that the change in price setting behavior
was one of the factors that provided them with the
comfort to start the easing cycle. We do see this

(05:27):
overall picture cautious optimism, but in an easing inflation environment
as supporting the case for food the OCO cuts.

Speaker 1 (05:34):
Yeah, twenty five or fifty, What do you reckon, Christina.

Speaker 2 (05:37):
I've been asked that a lot, and I would say,
based on today's results, you could argue the case for
eager move. Really, certainly it's encouraging to see that continue
decline in inflation indicator. We are expecting a twenty five
basis point decline at the upcoming meeting, and that more

(05:57):
reflects the fact that just with the commencement of the
easing cycle that we're just seen in August, we're already
seeing such a rebound in expectations. We feel it's prodent
to be a more measured in the easing cycle in
order to be able to assess the impact of the
moves that it's done today.

Speaker 1 (06:16):
Yeah right, that makes sense. Hey, thank you so much.
Christina really appreciated that. As Christina Lung, who is the
Deputy Chief Executive of the enzed AA, speaking of optimism
in the retail sector in Australia, that there's real reason
for optimism. So retail sales have actually rebounded up almost
a percent compared to expectations, so almost double the expectations,

(06:37):
which and less over there actually just putting down to
the weather they reckon it's been so warm throughout August
and Australia that actually retail sales have been almost twice
as good, or the growth in retail sales has been
almost twice as good as they had been anticipating. So
we're going to catch up with Paul Bloxam from HSBC
before seven o'clock. Yet his thoughts on that one says
Jack the final quarter of the year for US retailers

(06:58):
is historically cyclically. That makes a lot of sense heading
into Christmas and the holidays. What we're after is the
standard annual cycle to be a positive boost augmented by
interest rate cuts to give us a macroeconomic acceleration and
get us rolling into twenty twenty five. Yeah, obviously a
lot riding on that call next week. Well, I think
it's the second to last call for the Reserve Bank

(07:20):
for this year. Twenty five or fifty basis points seem
to be the pick between most economists. I think the
majority at the moment probably picking twenty five, but still
a bit of data to come out before that decision
is final. Right now, it's quarter past sixty with Jack Tame.
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