The pall of gloom over the business sector has lightened a shade but strong inflation and labour shortages will mean more central bank rate tightening.
Construction remains the most downbeat sector. Photo: 123RF
The ANZ Bank's monthly survey of business confidence showed a net 48 percent of respondents expect the broader economy will deteriorate this year from 57 percent pessimism in July.
The more closely followed firms' view of their own prospects also improved with a net 5 percent expecting to be worse off from the 9 percent a month earlier.
ANZ chief economist Sharon Zollner said sentiment had improved marginally for a second month, but the underlying causes of the gloom were still there.
"Inflation pressures remain intense. Inflation expectations were all but unchanged at their highs, and the net proportion of firms expecting higher costs was steady."
Firms' employment intentions improved and their export expectations turned positive, they were still downbeat about profits, investment, and little changed about further inflation impacts on their costs, and the likelihood they will have to raise their prices accordingly.
Construction remained the most downbeat sector, although their expected costs fell sharply, and there were improvements in sentiment in the manufacturing, retail, and services sectors.
"While mildly rebounding activity indicators are ostensibly good news, today's survey was not particularly encouraging for the RBNZ [Reserve Bank of New Zealand]," Zollner said.
She said rate rises were affecting the housing market and the construction sector, but overall inflation indicators among businesses were "far too high".
Survey respondents reported wages rising 6.7 percent in the past year while they expected a rise of 5.3 percent in the year ahead, which would be a key factor in the strength of domestic inflation pressures and the RBNZ's response.
"Risks are tilted towards the RBNZ having to continue on with OCR [official cash rate] hikes next year to cool the economy sufficiently to feel comfortable they're getting on top of the inflation problem."