Business confidence taking sure steps

Higher dairy prices helped make agriculture the big mover this month. Photo / Bloomberg

ANZ’s first survey of the year shows companies across all sectors expect rise in activity.

Business confidence has strengthened in ANZ's first survey of the year.

A net 41 per cent of firms expect their own activity to increase over the next year, up from 37 per cent in December. The improvement was across all sectors - retail, manufacturing, agriculture, construction and services.

Profit expectations, and hiring and investment intentions have also lifted. A net 34 per cent expect the general business situation to improve, up four points from December.

"In cricketing parlance, New Zealand's innings is progressing nicely," said ANZ chief economist Cameron Bagrie.

"There are runs on the board: we're into the fifth year of economic expansion with depth down the order. The economy isn't knocking the ball out of the park; we're nudging ones and twos but accumulating nicely."

Agriculture was the major mover this month, Bagrie said. "General confidence, profit expectations and employment intentions in the sector have flipped from negative to positive. Higher dairy prices are no doubt working their magic," he said. "Such a bounce-back is particularly welcome considering the challenges delivered by Mother Nature."

With droughts becoming more common, farmers appeared far better placed to adapt and respond, he said.

A net 23 per cent of firms overall expect to raise their prices in the next three months, up three points from the December survey.

"But the level is still tame," Bagrie said. And inflation expectations one year ahead have eased to 1.7 per cent from 2.1 per cent in December, equalling the record low in May 1999.

Westpac economist Michael Gordon said the fall in inflation expectations was not surprising, as the recent plunge in fuel prices would still affect the annual inflation figures a year from now. "Frankly, even 1.7 per cent seems on the high side for a year-ahead forecast," he said.

"Overall, the survey suggests a continuation of the economy's above-trend pace of growth over the last couple of years, notwithstanding the temporary hit to GDP growth in the first half of this year as the drought weighs on agricultural output. But with price pressures remaining in check, the Reserve Bank can afford to sit on the sidelines for [some time]."

Bagrie said the narrow band within which responses to the survey had ranged over the past year was telling. "Amidst global wobbles, commodity spasms, currency gyrations, house price palpitations and an election, life has gone on," he said.

"If you want to see what it means when the get-on-with-it vibe is absent, jump across the Ditch."

Heading up

• Net 41% of firms expect their own activity to increase over the next 12 months.

• Net 34% expect the general business situation to improve.

• Net 23% expect to raise their prices in the next three months.