Business optimism soaring - survey

Shamubeel Eaqub.
Shamubeel Eaqub.
Economic activity accelerated in the second half of the year with businesses the most optimistic they have been for 20 years, the NZIER quarterly survey of business opinion shows.

New Zealand Institute of Economic Research principal economist Shamubeel Eaqub said optimism and activity were being realised as better profits, higher investment and more jobs.

In December, businesses were the most optimistic since June 1994, at 52%, up from 33% in September.

Domestic trading activity strengthened to the highest level since March 2005, with 15% of firms reporting increasing activity, up from 12% in September.

Reported hiring rose to the highest level since December 2006 and firms expected to hire more staff at the start of this year, suggesting an improved outlook for jobs and wages, Mr Eaqub said.

However, the Hudson Report of employment trends released this morning, showed hiring expectations dipped in December, with 60.3% of more than 1000 employers saying they intend keeping staffing levels in the first half of the year.

Mr Eaqub said the recovery was broadening across regions. Until recently, much of it was concentrated in Canterbury.

''This has now broadened to most regions across New Zealand, which points towards a more sustainable and stable recovery. Activity also accelerated across all sectors.''

Price increases were subdued, he said. Firms did intend raising prices due to increasing capacity pressures and strengthening economic growth. Capacity constraints were most pronounced in Canterbury but were starting to emerge in other regions.

More financial services sector firms expected interest rates would rise, consistent with expectations in December 2013, Mr Eaqub said.

BNZ senior economist Craig Ebert said the survey results did not up the ante regarding the rate of New Zealand's economic expansion and inflation risk.

It remained consistent with gross domestic product (GDP) growth running around 4% at an annual pace, above trend.

While there was further confirmation of business investment ramping up, helping to keep capacity pressures at bay, there remained clear indications the labour market was tightening, he said.

Overall, the survey was no ''smoking gun'' on inflation and it should leave the Reserve Bank comfortable with starting its stimulus withdrawal - raising interest rates - at its March 13 Monetary Policy Statement at the earliest, rather than being pressured to lift rates in the January 30 official cash rate review.

ASB economist Christina Leung said the NZIER survey provided an encouraging picture of New Zealand economic growth over the coming year, in line with the lift seen in earlier monthly business confidence surveys from October to December.

The detail of the report, while encouraging, was not as strong as the lift in headline numbers suggested.

Architects' outlook on building work eased but remained at historically high levels.

ASB expected the Canterbury rebuild and stronger house-building demand to be the key drivers of construction growth over coming years, she said.

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