Firms feeling a bit brighter

The construction industry is continuing to lead the business confidence charge. Photo / Sarah Ivey

Business confidence continues to improve, both about firms' own prospects and the broader economy.

In the National Bank's latest survey, 44 per cent of respondents expect general business conditions to get better, while 10 per cent expect them to worsen. The net 34 per cent positive is up from 28 per cent in February and the highest since August last year.

A net 39 per cent expect a lift in activity by their own firms, up eight points to a seven-month high.

That confidence is also reflected in higher investment and hiring intentions and improved profit and export expectations.

As it did last month, the construction industry led the charge, outdoing other sectors in general confidence, own activity and profit expectations, and investment and employment intentions. Expectations for both residential and commercial construction rose.

Goldman Sachs economist Philip Borkin said that was of little surprise given not only the work in Canterbury, but also the better signs emerging from the housing market in Auckland.

But the construction sector also led a deterioration in the survey's inflation gauges, with a net 31 per cent expecting to raise prices, compared with a net 22 per cent (up three points) among all firms surveyed.

Inflation rate expectations also kicked up slightly, from 2.7 to 2.8 per cent.

"Both movements are within typical volatility of this survey and so are unlikely to overly concern the Reserve Bank at this stage," Borkin said.

National Bank chief economist Cameron Bagrie sounded a cautionary note. "Following extended weakness we are mindful of a bias in confidence surveys.

"When asked whether things are going to be the same, better or worse the bias emerges - 'surely it can't get any worse!"'

Balance sheet repair had further to run and commodity prices were easing, Bagrie said.

But there are rays of sunshine, too. "Mother Nature has delivered the rural sector a volume windfall. Property prices are lifting," he said.

The global scene had improved a lot, with fears of Armageddon in Europe receding, for now anyway, and the US economy picking up.

"But with the current account deficit at 4 per cent of GDP, and a net external liability position of 72 per cent of GDP, the housing market can only take us so far," Bagrie said.

The outlook
* 34 per cent of firms expect general business conditions to improve
* 39 per cent expect a lift in their own activities (net figures)