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Weekly Commentary

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Steady progress

Mon, Oct 12 2009, 07:23 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

The positive New Zealand data continued last week, though there was nothing to match the fireworks in the Australian market.

The September Quarterly Survey of Business Opinion showed that business sentiment has improved markedly since the depths of the recession earlier this year.
Expectations of general conditions for the next six months soared to their highest in ten years, while own-activity expectations rose to slightly above their long-term average.

But the details of the survey, while encouraging, suggest that business sentiment as a whole is greater than the sum of its parts. The gap between own-activity expectations and recent performance was easily at its widest in the history of the survey. Firms reported that conditions remained tough in the September quarter – little better than in June by many measures. And in many cases, the sharp rise in expectations for the key indicators largely reflected a return to longrun averages, having come from record or near-record lows. This is consistent with an economy in the early stages of recovery, rather than one that is roaring ahead.

Indicators of inflation pressure remain modest. Pricing intentions rose in September, with a net 13% of firms expecting to raise their prices in the next quarter. This is a fairly low proportion compared to recent history – though it is consistent with annual inflation edging back into the upper half of the RBNZ’s 1-3% target band over the next year. Capacity utilisation fell from 90.7% to 88.4%, which appears to have been a correction of the abnormally sharp gain in the June quarter (the biggest quarterly increase on record, possibly due to an unusually low response rate for the question). Capacity utilisation is still at the second-lowest level seen during this cycle, and is some way below its longrun average.

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Published on  Mon, Oct 12 2009, 13:11 GMT