Falling business confidence points to... OCR cuts

A sharp decline in business confidence has led ASB to formally join the economists predicting three more OCR cuts by the end of the year.

Tuesday, July 7th 2015, 12:34PM

by Miriam Bell

In the latest NZIER Quarterly Survey of Business Opinion, which came out this morning, business confidence fell to the lowest level since September 2012.

NZIER senior economist Christina Leung said the results of the survey showed the New Zealand economy was losing momentum.

The drop in activity indicators in the June 2015 quarter pointed to annual growth remaining below 3% over the coming year, she said.

This was a marked drop from the 3.5% annual growth seen at the end of last year.

“It appears businesses have now moderated their activity expectations to be more consistent with the softening demand environment. So expectations have fallen – but from lofty levels.”

Leung said the results suggested further interest rate cuts would be on the cards in the remainder of 2015.

The sharp decline of business confidence over the second quarter of 2015 has led ASB to confirm its earlier, tentative prediction of three further OCR cuts this year.

ASB senior economist Jane Turner said the fall in business confidence, along with weak inflation indicators, should prompt further rate cuts from the Reserve Bank. 

“The second consecutive season of low milk prices along with the slowdown in construction activity growth are key factors weighing on business sentiment.”

With further deterioration in economic momentum likely during the rest of 2015, Turner said they expect the RBNZ to deliver another 75bp of OCR cuts before the end of the year.

ASB now sees the cuts coming as three 25bp cuts in July, September and October respectively – which will leave the OCR at a low of 2.5%.

However, Turner added that lower interest rates and the lower NZ dollar should help boost growth again in 2016.

Tags: ASB Mortgage Rates OCR OCR forecasts RBNZ

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