KEY POINTS:
Business confidence has strengthened in the National Bank's monthly survey, shaking off a high dollar, high interest rates, high oil prices and a global credit crunch.
"The economy looks teflon-coated," the bank's chief economist, Cameron Bagrie, said.
A steep rebound in confidence in the construction sector led the
improvement.
As usual, pessimists outnumber optimists about the outlook for general business conditions in the next year, but by a smaller margin than in September. A net 13 per cent expect a deterioration compared with a net 26 per cent in the previous survey.
Overall confidence has rarely been higher in the past three years. Firms' views of their own prospects have also improved.
A net 20 per cent expect their own activity to increase over the year ahead, up from 17 per cent in September.
Investment and hiring intentions have also strengthened, as have firms' profit expectations. Overall, the survey pointed to economic growth of around 2 to 2.5 per cent over the coming year, Bagrie said.
That was broadly consistent with how much he thinks the economy's available capacity will rise, implying little relief from inflation pressures.
"It suggests inflation will remain pretty elevated. In the survey pricing intentions and inflation expectations, both took disconcerting steps up."
A net 31 per cent of firms expectto raise their prices over the nextthree months, up from 29 per centin September, and inflation expectations for the year ahead rose to3.18 per cent from 3.14 per cent.
The construction sector's views of its own prospects shot up, with a net 35 per cent of firms expecting a busier year ahead compared with September's net 11 per cent expecting to go backwards. The 46-point rebound is unmatched in the 23-year history of the survey.
Some of it might be relief that the troubles of the finance company sector seemed to have settled down, Bagrie said.
"There does look to be a pretty good pipeline of non-residential and infrastructure work around."
The construction sector was the most hopeful that interest rates will fall in the next 12 months. Respondents in other sectors expect little change.
"Maybe they think that if things are weak Alan Bollard is going to stimulate demand. But the inflation story is more than construction [costs]. So if they are weakening it doesn't mean rates will come down."
The rebound in expectations for construction is at odds with Statistics New Zealand data on Tuesday, which showed residential building consents in September were 20 per cent lower than in September last year, while non-residential consents were down 9 per cent.
Confidence in the agriculture sector has eased and export expectations softened. Bagrie said that reflected the high New Zealand dollar.
"However the overall levels of agricultural confidence and export intentions remain solid, testament to the powerful support being provided by strong commodity prices and global growth."