Construction sector boosts business confidence

The construction sector is leading the charge across confidence, activity, employment, investment and pricing intentions, according to business confidence survey. Photo / Paul Estcourt

Business confidence rose for the fourth month in a row this month, despite a host of factors that might otherwise be expected to damp expectations for the period ahead, according to the latest National Bank Business Outlook survey.

A net 48 per cent of businesses expect better times over the coming year, with the construction sector leading the way, ahead of the Christchurch reconstruction.

Activity, profitability, investment and employment measures are all up significantly, in a result described as "tremendously encouraging" by the bank's chief economist, Cameron Bagrie.

However, the result also creates further justification for the Reserve Bank to raise the Official Cash Rate from 2.5 per cent, Bagrie says.

"Amongst the uncertainty we see from day to day, there is a growing certainty: the New Zealand economy is in a far stronger position that was expected post the February earthquake, and than what could have been expected, given global challenges, which includes weakening growth in our major trading partner."

The result was "testament to real local substance", with reality finally catching up with expectations, although the survey of National Bank business customers was completed before the dramatic run up in the kiwi dollar over the last fortnight.

On the OCR, Bagrie says to "brace for interst rates to move up."

"Call it taking the OCR from extraordinarily low to exceptionally low."

At the same time, however, he says New Zealand's current position looks "remarkable" compared to global peers.

"The danger ... is that financial markets front-run the story so far thyrough a higher currency and expectations of higher interest rates that one nucleus of support, namely loos financial conditions, disappears before the party has moved beyond 9pm."