Business confidence is at its strongest since June 2007, when the domestic economy was starting to turn down ahead of the global financial crisis in 2008, according to the latest Quarterly Survey of Business Opinion from the New Zealand Institute of Economic Research.
The March quarter survey shows economic recovery broadening beyond Auckland and Christchurch, and no apparent impact from a string of corporate restructuring announcements in the first three months of the year, and the collapse of the Mainzeal construction group.
A net 23 per cent of firms expect better trading conditions in the next quarter, up from 20 per cent in the previous quarter, while a net 32 per cent firms are optimistic in March, seasonally adjusted, compared with 19 per cent previously.
While exporters continue to struggle with the over-valued kiwi dollar, the QSBO capacity utilisation measure, showing how much spare capacity firms have, found export firms were slightly more constrained than firms exposed only to the domestic economy.
"The median capacity utilisation of manufacturers and builders has risen from 90.5 per cent to 91.5 per cent (since December), the highest since mid-2010," NZIER says. "Much of this increase is in exporting firms; capacity utilisation is 2.7 per cent above the long run average."
However, the institute cautioned the improvement among exporters relates in part to food processing, which will take a dip in the next few months to reflect the impact of the late summer drought on agricultural production.
The QSBO does not take into account farmers, but does track spending on fertiliser, plant and machinery and other farm inputs, so gives a reliable read on the domestic economy.
NZIER's principal economist, Shamubeel Eaqub, one of the most consistently pessimistic economic forecasters of the last five years said he now classed himself "an optimist."
Hiring intentions have also strengthened in the latest quarterly survey, from a net 4 per cent of firms negative about new hires in December to a net positive 3 per cent. Investment intentions also turned positive, to a net 3 per cent, having been negative 3 per cent in December. Plant and machinery investment intentions rose to a net 8 per cent of respondents, from 5 per cent in the previous survey.
In Canterbury, unskilled labour is becoming more difficult to find, but inflation pressures remain subdued and interest rate expectations have dropped back, consistent with the view that the central bank will not tighten monetary policy in the course of this year.