Small business confidence is at its highest level in almost two years, according to ANZ's quarterly survey.

A net 20 per cent of business owners - up from 17 per cent in the September quarter - say they are upbeat about the year ahead.

Business confidence for micro businesses, those with up to five employees, rose five points in the latest quarter to a total of +14 per cent, while intermediate firms held steady on +26 per cent.

ANZ's composite measure - a key proxy for growth - lifted to +20 per cent during the December quarter. The composite measure is based on firms' activity outlook, hiring, investment and profit expectations, all which improved in the quarter.

Advertisement

Andrew Webster, ANZ general manager for retail and business banking, said the it was "storming finish" to a great year for New Zealand SMEs.

"If the confidence plays out, 2017 will be an excellent year for small businesses with a net 34 per cent expecting a lift in activity for their business over the next 12 months," he said.

Composite growth lifted across all five regions of the country, with Wellington and the South Island taking the lead.

Growth prospects in the regional North island and Canterbury started to gain more momentum, while Auckland continued to gradually climb.

Lack of skilled staff, competition and regulation are seen as top barriers to business growth, the survey found.

"While overall sentiment and growth prospects are positive, concern about finding skilled staff continues to create a potential wedge between growth prospects and actual growth," Webster said. "Competition and regulation are also seen as obstacles to businesses realising their growth potential in 2017."

Growth prospects for four of the five sectors improved in December.

Business confidence in Wellington rose to +32 per cent and the South Island outside of Canterbury +31 per cent, followed closely by Auckland and Canterbury.

Construction and the services sectors lead the way in business growth prospects, with an increase to +30 per cent and +27 per cent. Manufacturing rose to +24 per cent and retail to +14 per cent.

The agriculture sector reversed its September slide, increasing to +1.4 per cent.