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Business confidence surges to 10-year high

Wednesday 30th September 2009

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New Zealand business confidence surged to a 10-year high, underpinned by resurgent housing and construction markets as the economic recovery sets in.

A net 49% of firms expect general business conditions to improve in the coming year, up from a net 34% in August, according to the National Bank Business Outlook.

Residential construction intentions eased to a net 39% picking better times ahead from a 15-year high 48%, while commercial construction intentions climbed to a net 11% of firms from no change last month.

“There is no doubt housing and construction remain at the forefront of the improvement in confidence, although sentiment is clearly diffusing through the wider economy,” said ANZ National Bank chief economist Cameron Bagrie.

“Our composite growth indicator from the survey is gradually gaining momentum and point to two-and-a-half percent economic growth in the middle of next year.”

The housing market has shown signs of stabilising for the past four months, with QV Valuations announcing the fourth straight improvement in house values earlier this month.

Still, Reserve Bank Governor Alan Bollard said increasing house prices over this period were underpinned by an unusually low number of listings, and he didn’t expect the property market to boom.

The last time the National Bank survey gained this much was during the post-Asian crisis recovery in 1999. During this period, the central bank “watched the economy firm and resource pressures intensify for more than a year” before acting, and prompted a domestic recession in 2000 after hiking rates by 200 basis points, Bagrie said.

Companies see the Reserve Bank hiking interest rates in the next year, with a net 48% predicting a rise compared a net 31% in last month’s survey. The market has priced in 112 basis points of rate hikes by New Zealand’s central bank up to the end of July next year, according to ANZ National Bank research.

A net 1.8% of respondents expect employment intentions to recover, the first positive reading in 18 months, compared to a net negative 2.6% in August. Unemployment is tipped to rise to 7.3% next year before easing back to 6.7% in 2011, according to a New Zealand Institute of Economic Research survey of economists.

“Physical job shedding may be coming to an end, although employment intentions will need to gain further to avert a rising unemployment rate courtesy of new entrants into the workforce,” Bagrie said.

Firms became more upbeat about their own activity, with a net 32% expecting an upturn in the next 12 months, compared to a net 26% last month, while profit expectations climbed to a net 7.6% from 1% in August.

Export intentions fell to a net 19% this month from 21% in August, but have remained resilient in the face of a surging currency. The kiwi has climbed about 45% from its sub-50 US cents low in March. It recently traded at 72.08 cents from 71.89 cents immediately before the release of the survey.

Businesswire.co.nz

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