Business activity surges in December quarter

Last updated 10:10 15/01/2013

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Economic activity has surged to its best level since mid-2007, with interest rates likely to remain on hold for another year, according to a survey of business opinion.

The New Zealand Institute of Economic Research's latest Quarterly Survey of Business Opinion shows businesses are much more optimistic about the general economy at plus 19 per cent, compared with negative 1 per cent in the previous quarter, seasonally adjusted.

A reading above zero means there are more optimists than pessimists. 

Domestic trading activity in the December quarter jumped to plus 8 per cent from minus 4 per cent, seasonally adjusted. NZIER said that suggested economic growth for 2012 would be above 2 per cent. Growth would be about the same this year.

"There are encouraging signs of a strengthening economic recovery. The latest bounce is concentrated in Auckland and Canterbury, to a lesser extent," according to NZIER principal economist Shamubeel Eaqub.

"It is a very positive reading," he said. 

Activity had increased across all industries. The strongest was the building sector, helped by surging activity in Canterbury. Manufacturing production picked up from a weak September quarter. Merchants reported stronger retail spending too, though most of the responses were received before mid-December so did not including the Christmas trading period.

But the pickup is not flowing through to more jobs yet. New hiring remains subdued and workers were getting easier to find outside of Canterbury.

NZIER said that was surprising as a recovery in activity was usually accompanied by more jobs and increasing competition for workers that lifted wages.

"This part of the recovery remains absent," Eaqub said.

That could be explained by reduced working hours during the recession, which were now returning to more normal levels, rather than increased hiring. 

Investment intentions were positive, but remain low compared to a normal recovery.

NZIER said the Reserve Bank would keep interest rates on hold for some time, until the first quarter of 2014.

"The QSBO shows the beginning of a recovery, but still very low inflation," Eaqub said.

Firms did not intend to raise prices much and consumer price inflation remained low.

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