Business confidence out of the doldrums

Confidence levels among New Zealand businesses perked up in the final three months last year off the back of a pick-up in the economy. 

However, the improvement in companies' own business activities didn't drop to the bottom line.

A net 13 % of firms surveyed by the New Zealand Institute of Economic Research (NZIER) expect general business conditions to improve, turning around a gloomy outlook the led to the most pessimistic reading in four years three months earlier.

A net 18% experienced better trading activity, up six percentage points from September, and a net 20% say there will be better trading ahead, an improvement of two points.

The survey of 974 firms was through a period when the economy showed signs of improvement as a lower currency stoked demand for New Zealand's exports, global dairy prices recovered from their earlier collapse, a record number of tourists arrived and building activity remained robust.

"Demand has strengthened across all sectors in the survey and businesses expect a further improvement in their own trading activity over the next quarter," NZIER senior economist Christina Leung says. "This suggests solid gross domestic product (GDP) growth over the first half of this year."

The survey showed a net 18% of businesses experienced increased costs and 15% believe those costs will rise, while 3% raised prices, and 9% anticipate hiking prices.

That has kept pressure on margins, and a net 4% of firms reported a decline in profitability in the December quarter, the third decline, but a net 4% of businesses believe that will turn around in the March quarter.

Ms Leung says inflation is still subdued, and the NZIER expects the Reserve Bank will keep the official cash rate on hold at 2.5 % this year "in the face of solid economic growth."

Statistics New Zealand will release the fourth quarter consumers price index tomorrow, which is expected to show annual inflation of 0.4 % last year, below the central bank's target band of between 1-3 %. Governor Graeme Wheeler will review the benchmark rate next week.

Firms were more upbeat about hiring, with a net 17% taking on more staff in the December quarter, up from 9% in September. Employment intentions are steady at 14%.

A net 32% of businesses says skilled labour is still hard to find, and unskilled labour is also proving difficult to source, according to a net 5% of companies.

Investment intentions were more subdued, with firms more likely to invest in plant and machinery than in new buildings.

The construction sector showed signs of improvement with gains in new orders and output, and architects reporting increased work across residential, commercial and government sectors.

The retail environment also picked up with a net 24% of merchants reporting increased sales compared to 7% in September, and 26% say there will be higher sales over the next six months, up from 10% in the previous survey.

Services also improved with a quarter of firms reporting increased volumes compared to just 2% in September, while a net 5% are predicting higher prices, fees and interest rates, compared to 10% who three months earlier believed there would be a decline.

Business confidence and own trading activity both strengthen in the final quarter of 2015 (Source: NZIER)

(BusinessDesk)