Business optimism down

Businesses still see New Zealand's economy as "flat-lining", despite a building industry bounce back and positive retail expectations for the end of the year.

The latest New Zealand Institute of Economic Research quarterly survey of business opinion shows 13 per cent of firms are positive about the general business situation, compared with 31 per cent in June.

Principal economist Shamubeel Eaqub warned against reading too much into the survey, which predated the Reserve Bank's most recent comments about the global outlook and last week's two credit rating downgrades, saying experience was more of an indicator than expectations.

The building sector showed its first increase in prices in three years, but it was mainly concentrated in Canterbury, with the rest of New Zealand "easing off a touch."

"We're recovering on one crutch, which is Canterbury."

Sentiment in the quake-struck region was "optimistic but volatile", with businesses uncertain about the timing and momentum of the Christchurch rebuild and evidence of deep pessimism among businesses in the destroyed central city zone.

The strongest change in sentiment was among retailers, who appear to be expecting a boom in their last quarter, probably based on the Rugby World Cup, and there was slow recovery in the services sector, with net negative sentiment still prevailing in the financial services sector.

Eaqub described weakness in manufacturing as disappointing, with falls in both domestic and export sales and a worrying disconnection between Australian and New Zealand sentiment. Australian manufacturers were significantly more pessimistic than their New Zealand counterparts, which he said was rare.

"Whether that's denial, ignorance, or resilience - take your pick. It's unusual."

In the event of a second global financial crisis, he could not rule out renewed interest rate cuts.

"The prospect of a cut is not to be sniffed at if a global financial crisis happens, and that's a question mark. The [Reserve Bank] still has the option to cut rates."

However, survey results suggested economic growth for the year to September was likely to remain steady at 1.5 per cent, with no concerns about rising inflation.

Capacity utilisation eased off a little from 89.6 per cent in June to 88.7 per cent in September on a national basis, but is soaring in Canterbury. Capital goods investment has stabilised, with some slight improvement.

"More than 70 per cent of firms are saying things are flat."

Employment remained sluggish, but there was some wage pressure emerging, especially in the Canterbury building sector.

- BusinessDesk