Business confidence bounces back

Christmas shopping at St Lukes mall. The December quarter business confidence survey shows optimism and better trading for NZ firms. Photo / Dean Purcell

New Zealand businesses got out of the doldrums in the final three months of 2015 as the economy picked up from its mid-year sluggishness and firms saw improvements in their own activity, even if that didn't drop to the bottom line.

A net 13 percent of firms surveyed in the New Zealand Institute of Economic Research's December quarterly survey of business opinion expect general business conditions to improve, turning around a gloomy outlook of a net 10 percent seeing a deterioration three months earlier, which was the gauge's most pessimistic reading in four years.

A net 18 percent experienced better trading activity, up six percentage points from September, and a net 20 percent see better trading ahead, an improvement of two points.

The survey of 974 firms was through a period when the economy showed signs of improvement as a lower currency stoked demand for New Zealand's exports, global dairy prices recovered from their earlier collapse, record tourism numbers arrived to the country, and building activity remained robust with the Auckland house building programme.

"Demand has strengthened across all sectors in the survey and business expect a further improvement in their own trading activity over the next quarter," senior economist Christina Leung said in a statement. "This suggests solid GDP (gross domestic product) growth over the first half of 2016."

The survey showed a net 18 percent of businesses experienced increased costs and 15 percent see those costs rising, while 3 percent raised prices, and 9 percent anticipate hiking prices. That's kept pressure on margins, and a net 4 percent of firms reported a decline in profitability in the December quarter, its third decline, through a net 4 percent of businesses see that turning around in the March quarter.

Demand has strengthened across all sectors in the survey and business expect a further improvement in their own trading activity over the next quarter.

NZIER senior economist Christina Leung

Leung said inflation is still subdued, and NZIER expects the Reserve Bank will keep the official cash rate on hold at 2.5 percent this year "in the face of solid economic growth."

Statistics New Zealand will release the fourth quarter consumers price index tomorrow, which is expected to show annual inflation of 0.4 percent in 2015, below the central bank's target band of between 1 percent and 3 percent. Governor Graeme Wheeler will review the benchmark rate next week.

Firms were more upbeat about hiring, with a net 17 percent taking on more staff in the December quarter, up from 9 percent in September, and employment intentions steady at 14 percent. Skilled labour is still hard to find, with a net 32 percent saying it was hard to find, and unskilled labour was also seen as being difficult to find according to a net 5 percent of respondents.

Investment intentions were more subdued, with firms more likely to invest in plant and machinery than in new buildings.

The construction sector showed signs of improvement with gains in new orders and output, and architects reporting increased work across residential, commercial and government sectors.

The retail environment also picked up with a net 24 percent of merchants reporting increased sales compared to 7 percent in September, and 26 percent seeing higher sales over the next six months, up from 10 percent in the previous survey.

Services also improved with a quarter of firms reporting increased volumes compared to just 2 percent in September, while a net 5 percent saw higher prices, fees and interest rates, compared to 10 percent seeing a decline three months earlier.