Business confidence climbs to decade-high

Tuesday 6th October 2009

New Zealand business confidence turned positive in the third quarter, adding to evidence the economy is recovering from recession, with firms predicting a pick-up in activity in the final three months of the year.

A net 36% of firms were upbeat about current business conditions, a turnaround from the June quarter, when a net 25% were gloomy, according to the New Zealand Institute of Economic Research's (NZIER) Quarterly Survey of Business Opinion.

“The general message is that the worst of the recession is over,” said Shamubeel Eaqub, principal economist at the NZIER. “The only thing I’m a bit cautious about is how steep that recovery is going to be.”

New Zealand’s economy edged out of recession in the second quarter and traders are betting the central bank will embark on interest rate hikes amounting to 150 basis points over the next 12 months, according to a Credit Suisse Index based on the Overnight Index Swap curve.

Officially, Governor Alan Bollard doesn’t plan to raise the official cash rate from a record low 2.5% until the second half of 2010.

Companies still expect waning profits, with a net 39% predicting weaker earnings in the third quarter, an improvement from the net 44% that saw a drop if profit three months earlier. For the final quarter of 2009, the number shrinks to a net 3% seeing earnings weaken.

“The survey highlights that the economy has stopped contracting, and at face value points to solid growth in the December quarter,” said Nick Tuffley, chief economist at ASB.

Still, “there is some risk of that quarter underperforming expectations: there is a huge gulf between recently experienced activity and expectations yet no obvious economic driver to suggest growth will lift so sharply in such a short space of time.”

A net 8% of firms said they expect to invest less in plant and machinery in the latest quarter, down from 23% three months earlier. Capacity utilization slipped to 88.4% from 90.7%. A net 25% of companies said it is easier to find skilled workers in the latest QSBO survey.

Businesswire.co.nz

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