New Zealand local trading activity slowed and business confidence dimmed in the December quarter as the flurry of work in the wake of the Canterbury earthquakes comes back to more normal levels.

Firms' own activity slowed to a negative 4 per cent from a 1 per cent expansion in September, broadly in line with the moderation in the national economy, according to the New Zealand Institute of Economic Research's quarterly survey of business opinion.

NZIER said Canterbury's rebuild was supporting growth in businesses' trading activity, with the rest of the country slowing for two quarters.

A net 3 per cent of businesses were pessimistic about the general business situation in the three months ended December 31. That turns around a net 10 per cent of firms being optimistic in the September survey. Profitability expectations weakened to a negative 17 per cent from a negative 14 per cent.


"Canterbury is rebounding from the earthquake disruption, but the country is slowing," principal economist Shamubeel Eaqub said. "The survey shows slowing momentum, but still positive activity in the economy."

Eaqub warned responses from Canterbury firms weren't complete and said the survey may be overly optimistic about the region.

Government figures showed New Zealand's gross domestic product expanded 0.8 per cent in the September quarter, accelerating from a 0.1 per cent pace three months earlier, with a build-up in inventories underpinning growth.

Today's QSBO trading activity survey is consistent with annual economic growth of some 1.6 per cent, NZIER said.

"The momentum we had built up in the first half of the year is fading," Eaqub said. "We're not talking about out-right contraction," rather a slowdown in trading activity, he said.

The survey said retailers' high expectations for the Rugby World Cup didn't appear to materialise in the quarter, with sluggish sales leading to an inventory build-up. Still, retail sales growth remained positive at 2 per cent, slowing from 4 per cent in the September quarter.

Eaqub said that could lead to "some weakness in Q1 this year" with the build-up in inventories potentially "unexpected and unanticipated."

Building activity slowed in the quarter to negative 2 per cent experienced, and a fall in new orders, with negative 21 per cent in new orders, indicating further weakness in the construction sector.


Canterbury is beginning to show signs of capacity pressure, with utilisation of buildings and manufacturers climbing to 90.2 per cent from 89.6 per cent in September.

That didn't feed into inflationary pressures, which eased ahead of December consumer price index data out on Thursday. Economists are picking the CPI held at 0.4 per cent in the final three months of the year, and firms surveyed in the QSBO wound back interest rate increases to 26 per cent from 54 per cent in September.

The Reserve Bank will review monetary policy next week, and is expected to keep the official cash rate on hold at 2.5 per cent for most of this year.

The survey showed continued resilience in the labour market, with actual hiring and intentions to take on new staff improving, though firms are finding it easier to find unskilled staff rather than skilled workers.

The services sector continued to recover through the quarter, with the volume of sales rising to 3 per cent from a negative 6 per cent, though expectations declined to a negative 1 per cent from plus 17 per cent.

Firms' building investment intentions were underpinned by demand in Canterbury, with the headline figure unchanged at 6 per cent, though plant and machinery investment intentions slowed to 0 per cent from plus 6 per cent in September.