Inflation, mortgages rise again in the mix as confidence rises

Business confidence has jumped into positive territory, with more companies forecasting better times ahead than expecting a deterioration, according to an ANZ survey.

ANZ said its December Business Outlook survey saw “leading” business confidence jump 16 percentage points with a net 9% of companies optimistic about the economy over the next year.

A net 22 percent of companies were optimistic rather than pessimistic about their own outlook, the highest number since March 2018.

Chief economist Sharon Zollner said companies seemed to be full of holiday cheer.

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But the flip side was that the “common assumption” that mortgage rates would be kept to a minimum for many years could be in doubt if inflationary pressures continue to mount, he said.

The survey indicated that a net 35 percent of companies intended to raise their prices, with possible supply disruptions.

The survey comes a day after Stats NZ reported a 14 percent increase in GDP in the September quarter and revised down its estimate of how much the economy contracted in the previous six months.

“We should celebrate the fact that our economy will emerge from 2020 in a much better shape, cyclically and structurally, than most,” Zollner said.

“We came together, we stayed separate, we eliminated Covid-19 twice, and we got the economic and general welfare rewards.”

Zollner acknowledged that behind the figures there are some real tensions and tensions, both in “overheated” sectors such as construction and in “cold” sectors such as tourism.

It also expected a “technical recession” in the last quarter of 2020 and the first quarter of 2021, as activity retreated somewhat from its rebound in the third quarter.

ANZ reported earlier on Friday that consumers had expected house prices to rise 6.7 percent in the next year and that their confidence in the economic outlook had risen back to near-average.

The bank’s ANZ-Roy Morgan consumer confidence index rose 5 points in December to 112, approaching its all-time average of around 120 points.

The rise in home price expectations, from an expected 6.4 percent annual rise last month, meant that higher price expectations were the strongest since ANZ began measuring them in 2010, the bank said. .

The Reserve Bank has assumed that rising house prices help boost consumer confidence.

But Zollner said he believed the link between the two was weakening due to falling homeownership rates, even though they moved in the same direction in his latest poll.

Compared to several years ago, “a greater proportion of people are worse off, rather than better, when house prices go up,” he said.

Price expectations reported in the survey tended to reflect what people had read about the housing market, so they tended to lag behind real price changes rather than being a good predictor of them, he said.

“But they tell you that the rise in house prices has been noticed.”

Consumer inflation expectations in the coming year fell 0.4 percentage points, but remained remarkably high at 4.3 percent, it said.

Most people did not know what inflation was and usually forecast figures that were too high, he said.

But it was still interesting that people’s perception was that there was a lot of inflation out there and “where there is smoke there is fire,” he said.

“In the context of New Zealand, where Covid-19 was quickly brought under control and fiscal policy filled the revenue hole, the impact on the supply of goods is proving to be much more persistent than the disruption in demand,” Zollner said.

“So inflation is worth looking at, as it is the key to future interest rates,” he said.

The Reserve Bank would not tighten monetary policy in response to “temporary supply-driven inflation,” but on the margins it reduced the chances of further cuts in the Official Cash Rate, he said.