Business confidence races ahead

JOHN SELKIRK/Dominion Post

OUTLOOK IMPROVES: Bank of New Zealand's monthly survey shows a net 56 per cent of firms felt the economy would improve in the year ahead. That was up from just 15 per cent in July.

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Business confidence is racing up while about a third of New Zealanders think the worst of the recession is over, according to two surveys.

Bank of New Zealand's monthly survey shows a net 56 per cent of firms felt the economy would improve in the year ahead. That was up from just 15 per cent in July.

UMR Research's latest survey shows a sharp fall in concern about the global economic crisis since June, from 72 per cent to 61 per cent the lowest level since October last year. About 36 per cent think the worst of the recession is over, UMR said.

The surveys point to an improving economy in the coming year, despite a high kiwi dollar and an uncertain global picture, economists said. There was still a risk of a global double-dip recession, according to the recent G-20 finance ministers' meeting.

The surveys came out just ahead of Thursday's Reserve Bank decision on interest rates. The Manufacturers and Exporters Association is calling for the central bank to chop rates by 50 basis points to check the kiwi dollar, which was at US68.81c yesterday.

The dollar is up about 25 per cent from its March lows.

Most economists expect the Reserve Bank to hold the rate at 2.5 per cent, unchanged from its last announcement in July.

However, money markets are now pricing in the first rise in the official cash rate in March 2010, although BNZ economists expected the rise to come in June.

TD Securities senior strategist Annette Beacher said the Reserve Bank should this week leave in previous comments that it would keep the "OCR at or below the current level" till late 2010.

Removing the "or below" phrase would risk signalling that the next move in interest rates was up and driving the currency even higher. Leaving in the phrase for the next six weeks could reverse or delay expectations of an early interest rate rise, she said.

New Zealand needed to maintain a clear distinction from the Reserve Bank in Australia where financial markets are expecting two interest rate rises in the December quarter. Ms Beacher did not expect rates to be cut in New Zealand this week.

The high kiwi dollar would be of concern to the central bank, raising widespread expectations that the recession will end in this quarter, she said.

BNZ said the improved confidence survey result suggested a better outlook for jobs and business investment. That meant unless there was an interest rate cut by the Reserve Bank or a surprisingly downbeat economic commentary, wholesale interest rates and the currency were likely to keep drifting up for the rest of the year.

The BNZ survey of 619 respondents showed there was still weakness in farm-related service sectors, car sales, tourism and advertising.

But there were widespread positive comments of "more customers coming through the door".

The building sector was the most positive it had been for a long time, the information technology sector was stronger and there were more signs of life in manufacturing, BNZ said.

- © Fairfax NZ News