NZ: QSBO affirmed views of a robust economy - BNZ

Craig Ebert, Senior Economist at BNZ, notes that after some wobbles in Q1 the NZIER’s Quarterly Survey of Business Opinion (QSBO) righted itself in Q2 – good and proper.

Key Quotes

“Net business confidence in today’s QSBO lifted to +19, from +2 three months ago. While this was heralded by the monthly business surveys it was good to see the increase confirmed.

But getting back to today’s QSBO, it’s true that it doesn’t survey farmers directly. So it will be overlooking a clear soft spot in the economy at present, namely the dairy sector. Having said this, confidence in the wider farming sector is not that negative - indeed has improved in some surveys – while anecdote is mixed rather than wholly negative. And it’s not as though the QSBO doesn’t reflect the commodities sector, full stop. It does, by way of surveying the many firms that operate in it.

The economy’s overall vibe is strong. This messages gels with the latest monthly ANZ business survey, which arguably is over-weight in its canvassing of farmers and the rural sector.

All in all, today’s QSBO affirmed our views of a robust economy, with underlying inflation pressure. In this there is absolutely no basis for RBNZ to ease (or even run overtly easy policy). But the caps that are being applied to headline CPI inflation – via the strong exchange rate, commodity prices and partly-backward looking inflation expectations – is bound to keep worrying the Reserve Bank. As will the potential backwash from Brexit. With threats to its forecast pick-up in CPI inflation, we suspect the Bank will keep responding by cutting its Official Cash Rate – rather than promoting the flexibility that it has under its PTA – while trying to obviate a bigger imbalance in the housing market by tightening its LVR prescriptions even further, relatively soon.”