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Business confidence has soared to the highest level in a decade, according to the ANZ Business Outlook survey for August.

Topline confidence lifted 23 points to +51 in August, and firms’ expected own activity jumped 21 points to +37, a seven-year high.

“The August ANZ Business Outlook survey showed a flurry of optimism. Forward-looking activity indicators lifted strongly, and this was evident already in the responses that came in at the very beginning of the month”, said ANZ chief economist Sharon Zollner.

“Things are looking up, albeit from a pretty dark place for many firms.”

Zollner noted that the lift in confidence pre-dated the Reserve Bank’s interest rate cut on August 13.

“It wasn’t the Reserve Bank’s [RBNZ] cut to the Official Cash Rate [OCR] that kicked off the lift – we saw an increase across the survey already in July, and the further large jump in August was already evident when the survey first opened at the very beginning of the month,” she said.

“That’s certainly not to say that interest rates have nothing to do with it. Wholesale interest rates dropped steadily over July and into August as economic data deteriorated and economists brought forward their forecasts of when the RBNZ would reduce the OCR.”

Wholesale rates fell further when the RBNZ cut the OCR on August 14, but the big move lower in wholesale rates, and the start of the meaningful falls in mortgage rates, was well before that, Zollner said.

While this was a strong result, it was important to keep it in perspective, she said.

“Not to be a killjoy, but it remains the case that the hurdle for expecting better times ahead is very low: reported past activity, which has a good correlation to GDP over its short history, barely lifted, and at -23 remains very weak.”

ANZ chief economist Sharon Zollner confidence is improving.

Variation in reported activity between sectors was stark, with construction the weakest by quite some margin, followed by retail. Agriculture was the only sector reporting higher activity than a year ago.

Pricing intentions rose 3 points to a net 41% of firms intending to raise their prices in the next three months, with the average expected increase lifting from 1.4% to 1.6%.

By sector, retail and manufacturing rose (the latter from 1.8% to 2.7%, the highest read since June 2023).

Average expected price changes for the services sector were flat at 1.3%, and agriculture and construction fell, with the latter just 0.5%. Inflation expectations dipped from 3.2% to 2.9%, their first sub-3% read since July 2021.

The net proportion of firms expecting higher costs over the next three months was steady at 68%, with the magnitude of expected average cost increases also unchanged at 2.5%, Zollner said.

“In some good news for firms’ profitability, implied margin squeeze is easing, insofar as the gap between firms’ own expected price and cost changes continues to narrow.

Reported wage increases versus a year earlier fell from 3.8% to 3.3%, and expectations for firms’ own wage increases over the next 12 months were unchanged.

“So is this burst of (relative) euphoria justified, will it be sustained, and will it actually impact business decisions?” Zollner asked.

“We will be closely watching indicators such as housing auction clearance rates, job ads, PMI and PSI new orders, and card transactions. And the RBNZ will be too. Just as the pace of monetary tightening varied considerably, the speed with which interest rates come down will also be data dependent.”