Confidence slumps, costs surge as businesses face ‘perfect storm’, ANZ survey shows

Business confidence has slumped into negative territory, as firms face weaker activity and rising cost pressures, ANZ says.

The bank's latest Business Outlook survey shows headline confidence dropped from a net 32.5 percent in March to minus 10.6 percent in April.

Chief economist Sharon Zollner said buried in the data was the detail that responses were weaker in late March than early April, suggesting businesses may be adapting to the shock - but it was still a "precipitous fall either way."

She said the result confirms businesses have turned decidedly more cautious about the economic outlook.

Forward-looking indicators weakened broadly, with firms' expected own activity - a key measure of future demand - falling from 39.3 to 19.6, while employment, investment and export intentions all declined.

Profit expectations also swung into negative territory, highlighting the strain firms are under as costs rise while demand softens.

By contrast, reported activity over the past year was relatively steady at a net 16.9 percent, suggesting the hit to sentiment has yet to fully translate into weaker output.

However, ANZ noted the environment remains challenging, with uncertainty likely to weigh on hiring and investment decisions.

"It's a response to uncertainty to maybe defer risky decisions - and investing or employing someone are both risky decisions to make," Zollner said.

She singled out the construction sector, where higher interest rates, rising costs and potential material shortages had left it facing a "perfect storm."

"Some consents might be quietly going on the shelf until this uncertainty is resolved."

At the same time, inflation pressures picked up again in the survey.

Inflation expectations for the year ahead rose from 3.1 percent to 3.8 percent, their highest level since early 2024, while cost expectations surged to their highest levels since 2023.

ANZ described the environment as a significant cost shock for businesses, but firms appear reluctant - or unable - to fully pass those higher costs on, increasing pressure on margins.

Pricing intentions were little changed during the month, and expected price increases over the next three months remained broadly steady, while wage expectations eased slightly.

Zollner said that combination would offer some reassurance to the Reserve Bank that higher inflation may not become entrenched - although she acknowledged it was "bad news for workers, who are facing cost pressures of their own as fuel prices rise."

Zollner said the survey had not altered ANZ's forecast for the Reserve Bank to begin raising interest rates in July, even as firms and households continue to face rising costs.

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