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NZ business confidence extends post-election gains

Friday 28th November 2014

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New Zealand business confidence rose for a second month in November, extending post election gains from a two year low as firms took a more rosy outlook about their conditions.

A net 31.5 percent of firms are optimistic business conditions will improve in the coming year, up from a net 26.5 percent in October, according to ANZ Bank's latest Business Outlook survey. Firms expecting an improvement in their own activity rose to a net 41.7 percent from 37.8 percent last month.

Business confidence hit a 20 year high of 70.8 percent in February, before tapering off in the months leading up to the Sept. 20 general election, which was cited as a reason for everything from lower building consents to a drop off in share market activity, reduced house sales and investors dumping shares in power companies. The re-election of the National led administration has been expected to see a resumption in activity after uncertainty caused by the opposition parties' proposal to introduce a capital gains tax and other regulatory reform.

Since the start of the year expectations for the country's economic growth have slowed, with the Treasury cutting its gross domestic product forecast to 2.8 percent in the year through March 2015, from a previous estimate of 4 percent. Meanwhile, Reserve Bank governor Graeme Wheeler has paused in his tightening cycle, after lifting the official cash rate 100 basis points to 3.5 percent between March and September as he mulls the impact of the hikes on lower than expected inflation rates.

"Firms’ own activity and profit expectations, employment and investment intentions have been oscillating within a very narrow range for six months now," said Cameron Bagrie, chief economist at ANZ Bank New Zealand. "That’s pretty remarkable when we consider a background that has involved movement in interest rates, a pause, and now prospects of it being an extended one, swings in the NZD lurching commodity prices (dairy prices getting smashed), and other vagaries, a general election for one, that can throw sentiment around."

Today's survey showed a net 25.4 percent of firms expect interest rates to rise further, a drop from a net 54 percent a month earlier. Inflation expectations were little changed at 2.14 percent from 2.48 percent with a net 20.2 percent expecting to raise their own prices, down from 24.2 percent.

Those intending to employ more staff edged higher to a net 20.1 percent from 19.4 percent in October.

Firms’ confidence rose across agriculture, manufacturing and services industries, while it declined in retailing and construction.


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