First quarter growth for New Zealand small businesses is at its highest level in two years, according ANZ's Business Microsope survey.

"It's been a solid start to 2017 with good growth prospects for small businesses led by manufacturing and service sectors," said Antonia Watson, ANZ's managing director of retail and business banking.

"Small businesses make up more than 90 per cent of New Zealand's businesses, so it's fantastic to see they're hiring and most sectors will look to invest in 2017."

ANZ's composite measure, a key proxy for growth based on a firm's activity outlook, hiring, investment and profit expectations, lifted to +21 in the quarter for small firms. Intermediate businesses improved 2 points to +27 while micro businesses, those with five employees or fewer, were firm, down 1 point to +15.


A shortage in skilled labour is holding many small businesses back, the survey found.

"What remains a headache for small businesses is that they're not finding talent with the right skills," Watson said.

"It's a real handbrake for growth and has been identified as their biggest challenge over the last year. It's clear targeted hiring and skill development remain a crucial part of ensuring skills are available to fuel growth."

The composite measure for small businesses in Wellington rose to its highest levels since data was first collected in 2007, but dipped for those in the South Island.

Small businesses in Auckland and the regional North Island increased.

Thirty-two per cent of small firms expect a lift in activity in the next year.