"Modest growth" is the catchcry, economically speaking, according to the NZIER's Quarterly Survey of Business Opinion released this morning.
The survey asks businesses to gauge current business conditions based on their own performance and experience, and has been used to monitor the economy since 1961.
It shows steady economic activity in the June 2011 quarter, with short-term inflationary pressures subdued but a marked recovery in the local Canterbury economy.
“Business confidence bounced back after the Canterbury earthquake, but there continue to be signs of economic weakness," says NZIER chief executive Jean-Pierre de Raad.
- Trading activity in Canterbury was up to -3 percent (from -19 percent), while there was a modest improvement in the rest of New Zealand (+3 percent from -3 percent).
- Plant investment intentions also soared (+24 percent from +8 percent) as did hiring intentions (+22 percent from -22 percent), particularly in building and construction.
- Building investment intentions are stable at +24 percent elevated above the rest of New Zealand which remained flat at -9 percent
However, the service and retail sectors are still struggling. At a national level, volumes for financial services firms are the lowest on record.
Hiring and overtime worked fell in June, although business growth intentions improved looking forward.
Short-term inflationary pressure subdued
According to the survey, firms are struggling to raise prices amidst a subdued demand environment. Although cost pressures eased this quarter, tight margins and the lack of demand are the key constraints on passing on costs.
The economic conditions reflect modest growth, according to de Raad.
“Business confidence bounced back after the Canterbury earthquake, but there continue to be signs of economic weakness.”
He says although business expectations and intentions for the next quarter have improved, “we are yet to see the catalyst that transforms this confidence into hiring and investment.”
However, there are signs of hope.
“Continued deleveraging, slowing activity in Australia and a high exchange rate provide headwinds for economic growth.”