Confidence readings on high across all sectors

"At present there seems enough growth to grease the economy's wheels, without the threat of the wheels coming off." Photo / Doug Sherring

Construction industry remains the growth bellwether, says economist.

Business confidence continued the past year's improving trend in the ANZ Bank's May survey.

Not only did firms' views of the general business situation rise 10 points to a net 42 per cent positive, their expectations of their own activity - a more reliable indicator - were optimistic by a net 34 per cent, up three points on April.

"Profit expectations have risen to a 22-month high," said ANZ chief economist Cameron Bagrie.

"Investment intentions remain elevated and a net 10 per cent of firms expect to lift employment. That's solid, though not stellar."

Bank of New Zealand economist Stephen Toplis said hiring intentions at that level were consistent with annual employment growth rising to 2 per cent.

"Such growth will help support consumer confidence and spending alongside the housing market euphoria and very low interest rates," he said.

Bagrie said confidence readings were now high across all the major sectors, including agriculture, which had shaken off the drought blues to be positive once again.

"The construction sector remains the growth bellwether, remaining top of the pops in regard to confidence, firms' own activity expectations, employment, investment, pricing intentions, and profitability."

The survey's pricing measures remained benign.

A net 20 per cent of firms expect to raise their prices over the next three months, unchanged from April. "That's tame," he said.

And he pointed to inflation expectations in the construction sector which had eased to the lowest level in 3 years.

"That's an encouraging sign. The last thing New Zealand needs is for the Reserve Bank's hand to be forced on the interest rate tiller courtesy of construction costs," Bagrie said.

But export intentions over the year ahead remained weak, he said.

"A net 17 per cent expect an uplift. It's positive, but well shy of the historical average."

Bagrie said he was left with the impression of an economy neither too hot nor too cold. "This in itself is tremendously encouraging. Businesses respond to stability and certainty.

"At present there seems enough growth to grease the economy's wheels, without the threat of the wheels coming off."

Toplis said he would be surprised if the next survey did not find more optimism. "The New Zealand dollar has recently wilted and Fonterra has just announced a much higher payout than many had expected. This should bolster the confidence of an already more upbeat agriculture sector.

"Solid but not rampant growth and subdued inflation. What more could you ask for? The answer, and probably a vain hope, is that it stays this way."