New Zealand 3rd-qtr business confidence improves, remains pessimistic, says think tank

(Adds further details from NZIER)

WELLINGTON, Oct 1 (Reuters) - New Zealand's business confidence in the third quarter improved significantly but remains in pessimistic territory, while pricing pressures are at their lowest level in nearly four years, a private think tank said on Tuesday.

A net 1% of firms surveyed expected general business conditions to deteriorate compared with 44% expressing pessimism in the previous quarter, the New Zealand Institute of Economic Research's (NZIER) quarterly survey of business opinion showed.

“The start of the easing cycle with the OCR (official cash rate) cut by the Reserve Bank of New Zealand on 14 August at its Monetary Policy Statement appears to have supported expectations of improved conditions ahead,” NZIER said in its report.

On a seasonally adjusted basis, 5% expected business conditions to worsen, versus 40% pessimism recorded in the previous period. The survey's measure of capacity utilization rose to 89.1%, from the previous quarter's 88.7%.

NZIER said the survey shows a marked improvement in business confidence, which is most evident in the retail sector. However, Christina Leung, principal economist at NZIER in a press conference added the data indicated New Zealand’s economy contracted in the third quarter.

Furthermore, the survey showed pricing pressures have eased sharply in the weak-demand environment with a net 3% of firms able to raise prices to pass on costs, down from the net 23% who could in the prior quarter. This is the lowest since the fourth quarter of 2020.

“The fact that we’ve continued to see these weak price increases in the economy, it does support the cast for further continued OCR cuts over the coming year,” said Leung.

New Zealand’s central bank cut the cash rate by 25 basis points at its August meeting to 5.25% and has signaled it will cut further this year.

Leung added the survey could be used to justify the central bank cutting by either 25 basis points or by 50 basis points at the next meeting given the reduced pessimism but weak pricing pressures. The NZIER expects the central bank to cut the cash rate by 25 basis points. (Reporting by Lucy Craymer; Editing by Leslie Adler and Chris Reese)