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Rising confidence suggests economic momentum picking up

Tuesday 5th July 2011

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Business confidence rose strongly in the New Zealand Institute of Economic Research's latest quarterly survey, suggesting momentum in the economy is picking up.

A seasonally adjusted net 31 percent of firms were optimistic about the general business situation in the June quarter, compared to the net 11 percent of pessimists in the March survey. Unadjusted a net 27 percent were optimistic, up from a net 27 percent pessimistic.

Domestic trading activity rose, seasonally adjusted, for a net 4 percent of firms, compared to a net 5 percent reporting declines in the March quarter, the quarterly survey of business opinion (QSBO), published today, showed.

Activity expectations for the September quarter rose, with a seasonally adjusted 20 percent expecting an increase, up from a net 6 percent in the March quarter.

ASB chief economist Nick Tuffley and economist Christina Leung said confidence had rebounded to levels they were at before the earthquakes in Christchurch, which started last September.

The QSBO pointed to the underlying momentum in the economy picking up, they said.

Businesses were more optimistic toward expansion, reflected in an improvement in investment and hiring intentions, with those all above levels seen last December.

The ASB economists noted the possibility of a recovery in wage growth in the coming year, as businesses reported increasing difficulty finding skilled and unskilled labour at the same time as there was an upward trend in the number of New Zealanders leaving for Australia.

Pricing intentions also rose across all sectors surveyed, but that did not appear to be driven by a rise in capacity pressures in the economy, with costs and capacity utilisation both easing slightly from the previous quarter, the ASB economists said.

It appeared an improvement in demand had given businesses scope to recoup some of the rise in costs during the past year by raising prices.

ANZ economist Mark Smith and senior economist Sharon Zollner said the QSBO showed Canterbury closing the gap with the rest of the country.

With the pending construction boom, the Canterbury region was set to outperform the rest of New Zealand. Other regional disparities were at play, with confidence in the upper North Island trouncing that in the lower North Island, the ANZ economists said.

Canterbury builders' and manufacturers' experienced activity soared, which would be an ongoing dynamic that was set to create some regional and sector tensions within the economy.

Work in architects' own offices moved higher, illustrating the multi-year boost aspect of the earthquake reconstruction, while sentiment for retailers nationwide recovered, and, most encouragingly, overdue debtors plunged.

Manufacturers' fortunes were being sustained by domestic sales, but global ructions and the weaker Australian economy were starting to weigh, the ANZ economists said.

The building sector was gearing up for years of going all-out, but financial services firms' volumes were the lowest since the series started.

While the Government was moving fast on the daunting task of rebuilding Canterbury, the improved economic outlook was not just an earthquake reconstruction story, the ANZ economists said.

The outperforming rural sector would have some impact on surveyed manufacturers, financial conditions were providing considerable support, and the Rugby World Cup was set to provide additional impetus for growth later this year.


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