Business confidence hits 20-year high

JAMES WEIR
Last updated 10:48 08/04/2014

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The economy is running at the best pace in more than a decade and business confidence is the highest since 1994 according to a new survey.

The latest NZIER Quarterly Survey of Business Opinion released today shows optimism and activity were being translated into hiring, investment and better profits.

"The underlying trend is very, very strong - stonking," NZIER principal economist Shamubeel Eaqub said.

Retail spending surged to its highest level since 1994 and building was at its best since December 2003.

The survey shows confidence about the general business situation remained at net 52 per cent of firms positive, seasonally adjusted, the highest since June 1994.

The survey showed economic activity got stronger this year.

Trading activity, which closely mirrors economic growth, sped up to the fastest pace since the end of 2003 when economic growth hit 4.5 per cent with growing jobs and wages.

Eaqub said NZIER did not expect economic growth to hit such "heady rates" in the present business cycle, as credit conditions were different from 2003. Credit, which supercharges the translation of optimism to activity, was growing at half the pace it was in 2003.

But the latest survey painted a clear picture, he said: "The recovery is strengthening."

The Canterbury rebuild was a key driver of the growth, he said, but the expansion was not confined to Canterbury and Auckland. It was broadening to other regions, although there were still a few weaker patches, with Northland, Bay of Plenty, Gisborne, Hawkes Bay and Otago still contracting, the survey showed.

"The broader the recovery is, the more confident you can be that the recovery is sustainable," Eaqub said.

The survey shows expected domestic trading activity in the next quarter was a net 35 per cent positive, up from 31 per cent in the December-quarter survey. The figures are seasonally adjusted.

Retail sales were very strong and shops were hiring more staff and ordering more goods.

Most indicators were doing well in construction, but employment came back, which NZIER said could be an aberration.

"We were surprised by the broad-based dip [in employment]," Eaqub said, although other indicators for construction remained strong.

Architects were also looking "really strong", while manufacturing readings were "very encouraging".

"Things are improving with a lift in orders," Eaqub said.

The survey also showed a strong job market, especially in Canterbury.

Businesses were now finding it harder to find more labour and their capacity to make more products was also a constraint on business.

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Business investment was also broadening around the country.

With the economy getting better price pressures were picking up.

Firms were finally bringing in planned price rises as consumer demand picked up, Eaqub said. Fattening margins and growing sales were boosting profitability, which was in line with rising inflation.

Interest rates should go back to "normal", with floating mortgage rates getting back to about 7.5 per cent in time.

Most of the survey results came in during the first half of March, just before the Reserve Bank moved official interest rates up to 2.75 per cent, in a long-expected move.

- Fairfax Media

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