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NZIER sees 'encouraging signs of a strengthening economic recovery' with economic activity reaching its highest level in more than five years
The New Zealand Institute of Economic Research (NZIER) says economic activity in the final quarter of 2012 rose to its highest level in more than five years suggesting annual 2012 Gross Domestic Product (GDP) growth of more than 2%.
NZIER's Quarterly Survey of Business Opinion (QSBO) shows December quarter economic activity reaching its best level since mid-2007.
"Businesses are more optimistic (+19% from -1%, seasonally adjusted). (And) the trading activity indicator for the December quarter surged to the best level since mid-2007 (+8% from -4%, seasonally adjusted)," NZIER's principal economist Shamubeel Eaqub said.
"This suggests annual GDP growth for 2012 will be above 2%."
GDP for the year to September 2012 rose 2.5% and increased 1.1% in the 2011 calendar year.
Eaqub said there were encouraging signs of a strengthening economic recovery with the "latest bounce" concentrated in Auckland, and Canterbury to a lesser extent. However, he said the improvement wasn't yet flowing through to the labour market with new hiring still subdued and labour getting a bit easier to find outside of Canterbury.
"This is surprising as a recovery in activity tends to be accompanied by more jobs and increasing competition for labour that raises wages. This part of the recovery remains absent. It may be explained by reduced working hours during the recession, which are now returning to more normal levels, rather than through increased hiring," said Eaqub.
Meanwhile, although investment intentions were positive, they're also low compared with what's typically seen in an economic recovery phase. And although capacity pressures were "intense" in Canterbury, there's little pressure elsewhere.
"Firms do not intend to raise prices much. Consumer price inflation will remain low. Margins remain under pressure, but profits are beginning to lift on the back of better sales volumes," Eaqub added.
He suggested all this means the Reserve Bank will keep the Official Cash Rate on hold at 2.5% for some time.
"The QSBO shows the beginnings of a recovery, but still very low inflation."