Lift in business mood

18:47, Dec 18 2013

Businesses are in an elated mood, suggesting growth could rise to 5 per cent next year.

The ANZ's business outlook survey out yesterday shows a net 64 per cent of firms are optimistic about their prospects, the highest since February 1999, when New Zealand was bouncing back from the impact of the Asian financial crisis. The latest survey portends a booming economy, with many readings similar to 1994 and 1999, "years of incredibly strong growth".

The strong growth meant the country could look forward to tens of thousands of more jobs in the coming year - "comfortably" ANZ said. Employment intentions were the strongest seen since September 1994.

The economy was picking up despite the headwinds of a high New Zealand dollar and the wide expectation that interest rates would rise next year.

While the survey points to growth of 5 per cent, ANZ itself says growth was more likely to be 3 per cent to 3.5 per cent.

However, New Zealand's "rock star" economic status internationally did not mean the Reserve Bank would need to push up official interest rates further and faster than expected, ANZ chief economist Cameron Bagrie said.


Reserve Bank governor Graeme Wheeler would raise rates if he had to, Bagrie said, with two or three rate rises in early 2014 before a pause for six months before moving again.

It would not be a steady run of rate rises every six weeks, Bagrie said.

The central bank has indicated rates would rise about 225-basis points in the next 21/4-years.

But if Wheeler had to "twist the knife" a bit it would have a rapid impact because about three quarters of borrowers have loans fixed to less than a year or on floating rates, Bagrie said.

The Employers and Manufacturers' Association (EMA) said that any presumption that interest rates would rise early in 2014 was "precipitate and unjustified".

"It doesn't necessarily follow that because the economy is recovering that interest rates must also rise," EMA chief executive Kim Campbell said. In fact, rate rises could be delayed for many months, with inflation still low, at 1.4 per cent, a high exchange rate and a world awash with capital. "Interest rates rising too early would put at risk our fragile recovery." Fairfax NZ

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