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The latest Business Outlook survey from the National Bank contains more good news for those hoping the worst of the recession is over, with a net 6 per cent expecting business conditions to improve over the next 12 months.
This is up 4 percentage points from the last survey held in May.
The construction industry is particularly optimistic, with a net 46 per cent expecting better times ahead, the highest reading in ten years.
A net 8 per cent of firms expect better times ahead for their own businesses.
Improving sentiment was apparent in all the major sub-groups, apart from services.
"These movements are welcome. But, like last month, the dog still has fleas. Profit, employment and investment intentions remain very weak, barely budging on the month prior," said National Bank chief economist Cameron Bagrie.
The labour market outlook had remained particularly poor with a net 17 per cent expecting to hire fewer staff in the year ahead, down 1 percentage point on May.
"Recovery will not become self-fulfilling until investment and hiring pick up. These are naturally lagged responses, but critical nonetheless," said Bagrie.
The bank's 'composite growth indicator' - made up of firms' own activity, profit, employment and investment expectations - remained negative, he said.
"The economy continues to contract. But like last month, the positive spin is that the pace of contraction is occurring at a slower rate."
A new question was included in the bank's survey this month, asking about how easy it is for companies to get credit.
A net 17 per cent expect credit to be more difficult to get over the coming year.
Bagrie said this is difficult to benchmark, since it is the first time the question was asked, but similar surveys in the US show a perception that it is much harder to get credit.
"This may suggest that grumblings domestically with regard to credit is one of price as opposed to outright availability," he said.
Deutsche Bank economist Darren Gibbs said the key indicator in the survey - that asking about firms' own activity - was now back at levels "that suggest the economy will return to modest positive growth" in the third quarter of this year.
"We expect this indicator to continue to trend gradually higher as the substantial pipeline of monetary policy easing continues feed into domestic spending, offsetting continued near-term pressures on the export sector."
"As far as the Reserve Bank is concerned, we think that the continuation of improved global and domestic forward economic indicators together with continued improvement in the functioning of global financial markets, supports the market's assessment that the bank's easing cycle is over," said Gibbs. "We continue to think that the OCR will remain at 2.5 per cent over the next 12 months.
UBS NZ senior economist Robin Clements said while the improvement in the business sentiment indicators for June was "not overly material", it was probably just as important that they did continue in the improving direction.
"This serves to reinforce the signal that the economy is somewhere around a turning point, given that firms' own activity outlook was at its worst at the end of last year."
Clements said the Reserve Bank would take some comfort that their decision to leave the OCR on hold had not derailed the improvement in business confidence.
"However, with another wave of job-layoffs seemingly underway and the exchange rate proving persistently strong, it would be premature to rule out the possibility of further rate cuts."
-NZ HERALD STAFF
