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NZ business confidence rises in May, along with expectations for profit, pricing and inflation

Wednesday 31st May 2017

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New Zealand business confidence rose in May and firms saw rising exports, employment, profits, prices and inflation, suggesting the domestic economy continues to enjoy reasonable growth.

A net 15 percent of companies surveyed in the ANZ Business Outlook expect general business conditions to improve over the coming year, up from 11 percent in April. A net 38.3 percent see better times ahead for their own business, edging up from 37.7 percent, but still above the long-run average of 28 percent, and profit expectations rose 1.9 points to a net 27.7 percent seeing an increase in earnings.

"The economy’s excellent adventure continues," ANZ Bank New Zealand chief economist Cameron Bagrie said in his report.  "Firms are upbeat, and prepared to hire and invest. That’s an economic expansion that is still going full steam. Survey indicators are elevated but not stratospheric, consistent with the economy evolving into a mature stage of the expansion; we’re growing nicely off a good base, as opposed to lifting rapidly off a low level."

Bagrie said ANZ's composite indicator of business and consumer confidence pointed to economic growth of 3.5 percent to 4 percent.

The survey comes after last week's release of the government's Budget 2017, which included the Treasury's assessment that economic growth would accelerate to a peak of 3.8 percent in 2019, up from the 2.9 percent rate it had previously forecast. The economy has been underpinned by an expanding population, record tourism, a recovery in dairy prices, and robust consumer spending over the past year and is now set to receive more stimulus from the government's budget strategy of spending down futures surpluses on tax cuts and infrastructure.

The services sector was the most upbeat this month, with 21.1 percent seeing better times ahead for the economy, well ahead of other sectors. Retailing was next with a net 8.7 percent upbeat, followed by agriculture on 8.3 percent and manufacturing on 6.6 percent. By contrast, confidence in the economy among construction firms was at zero, meaning optimists matched pessimists.

Export intentions improved to 38.3 percent from 37.7 percent a month earlier, while investment intentions were unchanged at 23.5 percent. Those expecting to hire more staff rose to 23.6 percent from 21.5 percent, while those seeing higher profits rose to 27.7 percent from 25.8 percent. More companies saw room to raise prices - a net 30.2 percent had positive pricing intentions this month, up from 29.2 percent in April. Inflation expectations increased to 2 percent - the Reserve bank's target - from 1.83 percent in the April survey.

A net 61.4 percent of those surveyed expect interest rates to rise, down from 64.3 percent in April.

"Firms have good reason to be upbeat," Bagrie said. "Commodity prices have recovered. The NZD is in a zone that looks broadly fair. Construction and tourism continue

to boom. Interest rates are low. More arrivals (migrants) means more bums on seats. The spectre of higher interest rates is not weighing on sentiment."



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