NZ business confidence rises in May

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New Zealand business confidence rose in May and firms saw rising exports, employment, profits, prices and inflation, suggesting the domestic economy continues to enjoy reasonable growth.

A net 15 per cent of companies surveyed in the ANZ Business Outlook expect general business conditions to improve over the coming year, up from 11 per cent in April. A net 38.3 per cent see better times ahead for their own business, edging up from 37.7 per cent, but still above the long-run average of 28 per cent, and profit expectations rose 1.9 points to a net 27.7 per cent seeing an increase in earnings.

"The economy's excellent adventure continues," ANZ Bank New Zealand chief economist Cameron Bagrie said in his report. "Firms are upbeat, and prepared to hire and invest. That's an economic expansion that is still going full steam. Survey indicators are elevated but not stratospheric, consistent with the economy evolving into a mature stage of the expansion; we're growing nicely off a good base, as opposed to lifting rapidly off a low level."

Bagrie said ANZ's composite indicator of business and consumer confidence pointed to economic growth of 3.5 per cent to 4 per cent.

The survey comes after last week's release of the government's Budget 2017, which included the Treasury's assessment that economic growth would accelerate to a peak of 3.8 per cent in 2019, up from the 2.9 per cent rate it had previously forecast. The economy has been underpinned by an expanding population, record tourism, a recovery in dairy prices, and robust consumer spending over the past year and is now set to receive more stimulus from the government's budget strategy of spending down futures surpluses on tax cuts and infrastructure.

The services sector was the most upbeat this month, with 21.1 per cent seeing better times ahead for the economy, well ahead of other sectors. Retailing was next with a net 8.7 per cent upbeat, followed by agriculture on 8.3 per cent and manufacturing on 6.6 per cent. By contrast, confidence in the economy among construction firms was at zero, meaning optimists matched pessimists.

Export intentions improved to 38.3 per cent from 37.7 per cent a month earlier, while investment intentions were unchanged at 23.5 per cent. Those expecting to hire more staff rose to 23.6 per cent from 21.5 per cent, while those seeing higher profits rose to 27.7 per cent from 25.8 per cent. More companies saw room to raise prices - a net 30.2 per cent had positive pricing intentions this month, up from 29.2 per cent in April. Inflation expectations increased to 2 per cent - the Reserve bank's target - from 1.83 per cent in the April survey.

A net 61.4 per cent of those surveyed expect interest rates to rise, down from 64.3 per cent in April.

"Firms have good reason to be upbeat," Bagrie said. "Commodity prices have recovered. The NZD is in a zone that looks broadly fair. Construction and tourism continue
to boom. Interest rates are low. More arrivals (migrants) means more bums on seats. The spectre of higher interest rates is not weighing on sentiment."