New year, new optimism for NZ businesses

Economic activity surged in the December 2012 quarter to its best level since mid-2007, according to the latest NZIER Quarterly Survey of Business Opinion, and businesses are feeling optimistic about the year ahead.

Economic activity surged in the December 2012 quarter to its best level since mid-2007, according to the latest NZIER Quarterly Survey of Business Opinion, and businesses are feeling optimistic about the year ahead.

As a result, principal economist Shamubeel Eaqub said annual GDP growth for 2012 would likely surpass 2 percent.

“There are encouraging signs of a strengthening economic recovery. The latest bounce is concentrated in Auckland, and Canterbury to a lesser extent."

Businesses’ confidence in the general economy improved from -1 to +19 on a seasonally-adjusted basis and expectations of firms’ own activity also improved, rising from 9 to 22.

However, new hiring remains subdued (hiring intentions actually slipped one point), even though economic recovery tends to be accompanied by more jobs and increasing competition for labour that raises wages.

Eaqub said this might be explained by reduced working hours during the recession, which are now returning to more normal levels, rather than through increased hiring.

Investment intentions, while positive, are also low. The survey found companies did not intend to raise prices much, though profits are beginning to lift on the back of better sales volumes.

The QSBO surveys manufacturers, builders, architects, wholesalers and retailers, and service sector firms regarding both their recent experience and their expectations for the next three to six months.

According to ASB economist Daniel Smith, despite the improvement in business conditions, cost pressures and pricing intentions remain very subdued.

The one area in which capacity pressures are building is Canterbury, where rebuilding activity clearly accelerated.