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NZ business confidence recovers

Wednesday 27th October 2010

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New Zealand business confidence bounced back from a 15-month low as firms prepare for the start of the export season, though the strong kiwi dollar kept companies downbeat on the prospects for foreign sales.  

Headline confidence climbed 10 points to a net 24% of respondents expecting better times in the coming year as exporters prepare to hawk their wares, according to the National Bank Business Outlook. That’s the first lift in business confidence in five months, and companies’ expectations for their own activity rose 4 points to 20%, while more companies expect to make a better profit in the coming year at a net 9.5% from 3.4% in September.

Still, the strong kiwi dollar, which rose 10 basis points to 74.92 US cents after the release, damped export intentions which fell 12 points to a net 20%.

“After months of shrugging off the steady rise in the NZ dollar exchange rate, the break of 75 cents against the US dollar appears to have been a tipping point,” said the bank’s chief economist Cameron Bagrie in his report. “Exporters are now eyeing what appears to be a relentless march upwards in the NZD/USD and are taking note.”

Reserve Bank Governor Alan Bollard will announce his review of the official cash rate tomorrow, and is tipped to keep it at 3%, a level he called “very stimulatory”. The bank paused its tightening policy as the economic recovery stalled, with households focused on repaying debt, amid a tough labour market and tight credit conditions.

Bagrie said firms’ pricing intentions fell 5 points to a net 25% expecting to lift prices, with the “threat of second-round GST related pricing pressures” minimal.

“Such a dynamic allows the RBNZ more scope to sport the recovery via keeping interest rates at a supportive level for some time,” he said.

Inflation expectations slipped 3 basis points to 2.91%, with a 3 point fall in those firms picking an increase in interest rates to a net 53%. Ease of credit turned positive this month, rising to a net 1.5% of firms expecting easier access to funds, from a negative net 7.9% last month.

Employment intentions recovered this month, with a net 7.6% of firms looking to hire new staff in the coming year, up from 0.8% last month, while only 8.4% predict the jobless rate will rise during this period, down 10.6 points.

Companies were less upbeat about the construction sector, with a net 8.5% of firms expecting a lift in residential building from a net 14% last month, while 16% of firms expect less commercial construction compared to 8.3% in September.

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