Confidence continues climb to 14-year high

Construction firms are most upbeat, according to the latest business confidence survey. Photo / NZ Herald

Business confidence, which has been on a strongly rising trend since the middle of last year in ANZ's monthly survey, has hit its highest level since April 1999.

A net 53 per cent of respondents expect the general business situation to improve over the year ahead, up from 50 per cent in June.

The spread between the most and least confident sectors is narrowing.

"That's a good sign that the [economic] expansion may be broadening," said ANZ chief economist Cameron Bagrie.

Businesses' assessments of their own outlooks remain high, easing one point from June's three-year high to a net 44 per cent positive.

Construction firms are the most upbeat and agricultural the least.

The survey will not have captured Fonterra's announcement that it has lifted its forecast milk price for the 2013/14 season to $7.50 per kilogram of milk solids. The combination of higher prices and increased production is expected to boost the economy by more than $3 billion.

The ANZ survey showed profit expectations increased to a 14-year high, driven by the services sector.

Investment intentions weakened from last month's high but remain at the second-highest level recorded in eight years, and employment intentions eased slightly to the second-highest level in three years.

There were some obvious reasons to be optimistic, Bagrie said.

"House prices are up, interest rates are low, dairy prices are high, net migration is rising, we have a city rebuild under way, and the global scene is reasonably stable - for now."

If there is a cloud, it is a rise in the net balance of firms intending to raise their prices over the next three months (from 26 to 30 per cent), and in inflation expectations (from 2.3 to 2.36 per cent).

"The level is still low so let's not get overly excited," Bagrie said. "But a turning point may be upon us."

ANZ's composite sentiment indicator, which combines results from this survey and the ANZ-Roy Morgan monthly survey of consumer confidence, is pointing to the potential for 3.9 per cent economic growth by the end of the year.

"The economy doesn't have the capacity to grow that fast sustainably, and such a rate still looks somewhat rose-tinted to us," Bagrie said, "but thankfully there are still some resources that can be absorbed before capacity constraints start to bite."