OCR cuts happening earlier than anticipated; Decline in business confidence for May may actually be a positive development

Business confidence took another hit in May, with ANZ’s latest Business Outlook survey revealing a further decline. The survey showed that many firms are struggling to remain optimistic about the future, as the economic slowdown continues to weigh on their outlook.

ANZ chief economist Sharon Zollner noted that while the survey results were grim, they could be seen as encouraging for the Reserve Bank of New Zealand (RBNZ). Zollner suggested that the RBNZ may be able to cut the Official Cash Rate (OCR) earlier than expected, as slowing domestic demand continues to impact inflation pressures.

The survey indicated a four-point drop in business confidence to +11 in May, following previous declines in April, March, and February. While the manufacturing sector showed some positivity, the services sector was feeling the chill of the economic slowdown.

Despite the challenges, Zollner highlighted a welcome easing in inflation indicators, with pricing intentions and inflation expectations both showing a decrease. However, the proportion of firms expecting higher costs remained high.

Overall, the survey results suggest that the New Zealand economy is still in a soft patch, with inflation pressures easing gradually. The RBNZ’s monetary policy statement last week indicated a need for restrictive policy to meet inflation targets, but there is hope for improvement in the future.

As businesses continue to navigate uncertain economic conditions, the RBNZ and policymakers will be closely monitoring the situation to ensure a sustainable recovery.