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Business gloom turns around in latest confidence survey

By Rob Hosking

Friday 28th July 2000

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Business confidence has shown a small upturn after being in the pits for the past couple of months but the view is still gloomier than during the darkest days of the Asian crisis.

The National Bank's monthly survey, released this morning, shows a net 7% of firms expect business to improve over the coming year - up from a net 4% last month.

Agriculture and manufacturing are the most optimistic and construction is the only sector that expects reduced activity.

The turnaround is no surprise to the bank's chief economist Brendan O'Donovan. He said the two most important factors were the government's promise to water down the Employment Relations Bill and its apparent pulling back from other pre-election promises such as paid parental leave. At the same time profits, investment employment, pricing intentions and even construction had all improved.

The Reserve Bank's decision not to raise interest rates in July also played a part, he said.

Mr O'Donovan disagrees with government claims the fall in confidence is commentator driven: "This argument is too clever by three-quarters - while the extent of the fall in confidence is excessive, it has not been without cause."

Economic Development Minister Jim Anderton told Parliament's finance and expenditure committee this week the fall in business confidence was "not rational."

"If it were rational it would not have fallen below Asian crisis levels; if this is as bad as the Asian crisis then I must be from a different planet," he said to vociferous disagreement from opposition MPs.

Two upcoming events are likely to either reinforce the upward trend in confidence or push it down again.

Early next week the government will release details of its changes to the Employment Relations Bill. While ministers have made emollient noises on issues such as disclosure of financial information to union officials and directors' liability for unpaid holidays, the government has kept a tight lid on what the actual changes might be. The other decision, just over a fortnight away, is to be made by the Reserve Bank. A further 0.25% rise in the official cash rate was factored in to the central bank's projections for August but a majority of bank economists believe governor Don Brash will stay his hand until later in the year.

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