Weak spots amid general confidence

Some tourism and retail activities are contracting. Photo by ODT.
Some tourism and retail activities are contracting. Photo by ODT.
Business confidence remains at its best level in 20 years, according to the influential New Zealand Institute of Economic Research's quarterly business opinion.

However, while there is a broadening recovery across regions, there are weak spots.

Activity was particularly strong in Auckland, Canterbury and much of the South Island.

But Northland, Bay of Plenty, Gisborne-Hawkes Bay and Otago were still contracting, according to the survey.

In contrast, Southland's domestic trading activity grew 33%, Canterbury-West Coast grew 24% and Tasman-Nelson-Marlborough grew 44%.

Otago-Southland Employers Association chief executive John Scandrett said the diversity of the regional make-up and the early March survey timing were the key elements to keep in mind when assessing the results of the survey.

''We know we have strong economic growth in Central Otago that is not naturally mirrored elsewhere in the province. And we know we can point to recent national-leading manufacturing survey outcomes that straddle a wide range of export businesses and primary industry activities.''

There were also pockets of contraction in selected sectors, including in some retail and tourism activities, he said.

Mr Scandrett would have been more interested to see the survey outcome had it been undertaken in the last half of March.

During the month, there had been several positive announcements highlighting significant local construction, education and service sector momentum.

Inclusion of that positive information might have delivered a ''considerably stronger'' Otago result.

''I feel too, we here in the South, at this time, are somewhat in awe of the magnitude of the high-revving Canterbury and Auckland economic development gains. There might be some unwitting survey understatement of how we feel when we are lining up with what is happening further north,'' Mr Scandrett said.

NZIER principal economist Shamubeel Eaqub said trading activity, which closely mirrored GDP growth, accelerated to the fastest pace since December 2003 - when annual GDP growth was near 4.5%.

''While we do not expect economic growth to hit such heady rates in the current business cycle, as credit conditions are very different now, our latest survey paints a clear picture: the recovery is strengthening.''

Business confidence held steady in the three months ended March and remained at the highest level since mid-1994.

Optimism and activity was being realised into hiring, investment, increasing margins and profits.

Intentions to invest in building, in particular, were soaring and were at the highest levels since records began in 1975, Mr Eaqub said.

Price increases were accelerating. Firms were finally implementing intended price increases as consumer demand strengthened. Fattening margins and growing sales were boosting profitability.

''This is consistent with increasing inflation but also with more investment and a lift in economic activity.''

Increased inflationary pressure meant more financial services sector firms expected interest rates would rise - a net 87%, up from 69% in December, he said.

BNZ senior economist Craig Ebert said he was surprised by survey staffing constraints not getting any worse.

''Yes, they remain consistent with a tightening in the jobs market - but in a gradual, rather than rapid, fashion.

"So we probably shouldn't expect the unemployment rate to fall precipitously over the near-term, especially with strong levels of net immigration acting as a safety valve on the supply side.''

ASB chief economist Nick Tuffley said the inflation indicators showed a marked increase in the number of firms intending to raise prices, as well as the number expecting to face increased costs.

That suggested inflation would continue to rise this year.

''The inflation picture remains somewhat mixed, with measure of capacity constraints not showing much of an increase. Capacity pressures also remain much more pronounced in Canterbury than through the rest of the country.

''With inflation rising but not surging, we still expect the official cash rate to rise at the Reserve Bank's April, July and December reviews this year, on the way to a peak of 4.5% in late 2015.

dene.mackenzie@odt.co.nz

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