Business confidence up in April - biggest rise since 2000

National Bank economist Cameron Bagrie.

Business confidence showed a marked improvement in April, according to the latest National Bank Business Outlook survey.

Overall, a net 15 per cent of respondents expect a deterioration in business conditions in the year ahead. This is an improvement from a net 39 per cent expecting business conditions to worsen in the March survey.

"This turnaround is the largest monthly improvement since December 2000," the bank said.

Companies' own activity expectations also improved. A net 4 per cent expect worse times ahead whereas in March the figure was 21 per cent. This is the largest improvement since February 1993.

"Could this be the first steps of a recovery taking hold -- the much talked about green shoots? Time will tell," said Cameron Bagrie chief economist of National Bank.

He said a turning point appeared to have been reached but the expectation was still for a deterioration. The survey was not yet in outright positive territory.

"Nonetheless, it's clearly an encouraging and positive step," he said.

Robin Clements, senior economist at UBS New Zealand said the improvement in business sentiment was "likely to reflect several factors that might have allayed some concerns".

It could reflect some signs of stabilisation in several areas, such as equity markets and housing and "a possible realisation that pessimism could simply have been overdone."

"However, one bounce does not make a trend," said Clements. "So we will need to see further gains if we are to conclude that a genuine turning point has been reached."

Now there was an additional threat, in the form of the Swine Flu pandemic, that could undermine sentiment again or subdue any further gains.

"While the improvement in business sentiment was significant, and welcome, it is worth remembering that, for the own activity measure, the long run average is a net +25.2 per cent. So, while the improvement in April is consistent with real GDP contracting 1-2 per cent towards year end, there is a long way to go to get back anywhere near trend growth."

Clements said he did not think this improvement in confidence was enough for Reserve Bank governor Alan Bollard to ease back and cut the Official Cash Rate by just 25 basis points tomorrow morning.

"While the global economic outlook isn't deteriorating as fast as it was, it is still deteriorating. Moreover, financial conditions have tightened, thanks to higher fixed mortgage rates and the exchange rate. Gains in consumer and business confidence are promising but are hardly to levels consistent with a sustained recovery in growth."

- NZPA