Finance Minister Grant Robertson welcomes a slight improvement in business confidence

The latest set of business confidence numbers, which showed a slight pick-up in firm's levels of optimism, was welcomed by Finance Minister Grant Robertson photo / Stephen Parker

Business confidence – the issue the Prime Minister dubbed an "elephant in the room" for the Government – looks to have turned the corner, according to economists.

The latest set of business confidence numbers, which showed a slight pick-up in firm's levels of optimism, was welcomed by Finance Minister Grant Robertson.

But National Finance Spokeswoman Amy Adams said despite the increase, the overall economic picture for New Zealand was still gloomy.

NZIER's Quarterly Survey of Business Opinion (QSBO) showed although business confidence recovered slightly in the fourth quarter of last year, many firms were still downbeat about the economy.

A net 18 per cent of businesses expect economic conditions to deteriorate over the coming months – less than the net 28 per cent of businesses who were pessimistic in the previous quarter.

"We summarise the results as 'less gloomy' rather than 'more happy,'" NZIER Principal Economist Christina Leung said.

Business confidence has been somewhat of a thorn in the Government's side ever since it came to power.

Robertson acknowledged this – "clearly since the Government was elected there have been some challenges in terms of business sentiment."

But he said today's QSBO data showed overall, businesses' confidence levels were improving – in particular, they're more confident about their own activity and their own activity in the future.

In the past, he had stressed this was a better indicator of New Zealand's future economic direction.

More good news for Robertson is that economists expect business confidence to recover from early 2019.

"The combination of lower petrol prices and reduced policy uncertainty – as the Government beds down key policy details – are likely to be the main factors behind the improved business sentiment," ASB Senior Economist Jane Turner said.

Westpac Senior Economist Anne Boniface said the QSBO data showed businesses were also more optimistic about their own activity over the next three months.

"Concern about business confidence has dissipated somewhat over recent months as the level of business confidence has stabilised, albeit at low levels, and data on real economic activity has shown the economy continues to expand at a moderate pace."

But Adams was not as optimistic as the economists.

"The sustained negativity from small and large businesses is well founded because the Government has done nothing but make life harder for them."

She cited "union-friendly" employment law changes, hikes to the minimum wage and "reckless" decision making around the oil and gas ban as reasons for the negative level of confidence.

But Robertson said the real data showed the economy was still performing well.

"We've got low levels of unemployment, we've seen some excellent numbers around building consents in recent days.

"We're feeling positive about the real data on the economy, and it's good that these sentiment surveys are perhaps reflecting a bit more of that."

But NZIER's data showed that weak levels of profitability remain a concern for many businesses.

A net 22 per cent of businesses reported worsening in profitability in the December quarter, the data showed.

As well as this, there was an increase in the proportion of businesses which expected weaker profitability in the next quarter.

"A net 15 per cent of businesses expect reduced profitability in the next quarter – the weakest level since March 2011," Leung said.