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NZIER says business confidence survey shows GDP growth running at around 2% with low inflation pressures; RBNZ unlikely to hike OCR until mid 2014

NZIER says business confidence survey shows GDP growth running at around 2% with low inflation pressures; RBNZ unlikely to hike OCR until mid 2014

General business confidence was steady at its best levels in 3 years in the June quarter, the New Zealand Institute of Economic Research (NZIER) found in its Quarterly Survey of Business Opinion (QSBO).

The QSBO is the longest running survey of business confidence in New Zealand and is closely watched by the Reserve Bank and financial markets.

The survey showed businesses hiring and investing more while price pressures remained low. The NZIER said the survey indicated GDP growth of around 2% and that the Reserve Bank would not need to increase the Official Cash Rate until the middle of 2014.

"There's nothing in this survey that we would expect would change the policy settings of the Reserve Bank," NZIER CEO Jean-Pierre de Raad said.

However, financial markets disagree. They are currently pricing in 75 basis points of tightening by the Reserve Bank within the next year, helping to drive up average fixed mortgage rates by 10-20 basis points over the last 3 weeks.

The survey's measure of firms' expectations for domestic trading activity showed a net 18% expecting an improvement, unchanged from the March quarter.

However firms' experience of what actually happened in the quarter showed a fall to a net positive of 3% from 8% the previous quarter.

De Raad said the recovery was still at an early stage but there were continued sighs of momentum with few generalised shortages of labour or capacity.

Businesses remained optimistic about the general business situation with a net 31% seeing improvement, unchanged from the March quarter.

"Domestic trading activity, a very good indicator of GDP growth, eased from 10% to 4%. This is consistent with over 2% annual GDP growth, NZIER said.

The recovery was uneven across the regions with Canterbury surging, Auckland growing gradually and Wellington contracting.

"Activity is growing strongly for manufacturing and building, largely driven by Canterbury," NZIER said, adding that services sales were growing gradually, but financial services sales had slowed.

"This is consistent with slowing mortgage approvals in recent months. The growth in retail sales also slowed," it said.

Hiring and prices

Activity and optimism was flowing through to hiring and investment, with net hiring at 3% from 4% in March.

Costs and prices ticked up in the June 2013 quarter, but remained at historically modest levels.

"Much of the costs and prices pressures continue to be concentrated in Canterbury," it said.

A net 30% of survey respondents expected interest rates to rise over the next year,  up from minus 9% in March.

Reaction

Westpac Senior Economist pointed out the NZIER survey doesn't include the agricultural sector, which meant GDP growth in the June quarter was likely to be closer to the 0.3% seen in the first quarter because of the impact of the drought.

"That aside, the survey is consistent with our view that the New Zealand economy has entered a self-sustaining expansion, with indicators of underlying growth strengthening and becoming more broad-based in the last few quarters. There are some signs of inflation pressures emerging, but from a very subdued starting point," Gordon said.

The New Zealand rose 10 basis points to 78.1 USc after the release.

(Updated with more details, reaction)

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9 Comments

The survey showed businesses hiring and investing more while price pressures remained low. The NZIER said the survey indicated GDP growth of around 2% and that the Reserve Bank would not need to increase the Official Cash Rate until the middle of 2014.
 
Hold on a minute, didn't Treasury's most recent  economic forecast suggest a massive blow out in the GDP deflator (3.9%) to give a nominal 6.4% GDPE growth estimate for the year ending March 2014 and yet still calculate identical 2.4% real expenditiure and production growth outcomes? Read more @ Table 1.1, page B.3 | 9  (page 3/20, PDF Reader)
 
Now, while the arcane methods of deriving the GDP deflator is not my immediate focus, surely we must be expecting that the RBNZ notices the possibility of a little inflation around the corner or must we believe a little alchemy has been undertaken to provide a platform for better election debate outcomes.

The last inflation number was 0.9%?  and thats below the RB target, yet I think they noted they would do nothing as yes, the "RBNZ notices the possibility of a little inflation around the corner"
regards

Humbug...."while price pressures remain low"....but don't look at the property market Mr Wheeler...property prices have nothing to do with inflation or the cost of living ok....

Thats correct (inflation).  To set the OCR they look at core inflation items so no bubbles and seasonal variations skew the "number".
If ppl of course have no more money then paying more into a mortgage means they spend less elsewhere...so no inflation...the NET is what matters.
 
 

If ppl of course have no more money then paying more into a mortgage means they spend less elsewhere...so no inflation...the NET is what matters.
 
Hmmmm - so those with capital to invest note reduced spending as mortgage payments soak up discretionary spending dollars and thus halt investment in productive ventures, as they project lower borrowing costs to fund such endeavours in the future. Gee, that's me and quiet a few others I know.
 
Off that: 
 
New Zealand retail spending on credit, debit and charge cards rose more than expected last month, driven by fuel and hospitality.
 
Total retail billings rose 1.1 per cent, seasonally adjusted, in June, according to Statistics New Zealand. Actual retail sales were up 5.1 per cent from the same month in 2012. Read more
 
The kitchen ATM must be alive and well again and we know how that ended back in 2007/8.
 

Im not sure what you are driving at here? I did say "If" Yes, sure debt can be used short term to get over a shortfall.  Debt is though in effect at best a zero in the longer term, it has to be paid back plus interest (which usually sours things).  Steve Keen's work shows this nastily....ie increasing debt pushes us ever higher, yes. Decreasing of debt has a marked negative...a good mutliper on the upside but really bad on the downside.
I would also note that "economists" (or some anyway) have commented on their indeed being over-capacity, hence yes little business investment and then also un-employment doesnt drop, which ours hasnt...seems consistant then.
"Total card spending was inflated by a sharp rise in fuel prices in June."  Me Ive been getting 40cents off a litre for some weeks so my fuel bill is a bit lower...
C5, the kitchen ATM is interesting, rising at 5%, yet I wonder how many ppl have been having 5% increases. Since not, it must be they feel richer via house price gains, which they have not realised yet.   Business 1.6%, rather subdued by comparison, but its this one that makes us money, where to invest eh......
I find that despite the rough times for some somehow others seem to keep increasing spending....fasinating stuff.
regards
 
 

So the RBNZ site has finally been jazzed up a bit. Do you remember me posting on the survey I did for them last year, twice actually. There were 12 questions and they were about navigation within the site. One of them was "where woud you expect to find information about exhanging old New Zealand currency for new New Zealand currency. See if you can find that one on the site.

Steven. I'm reminded here of the late, great, Trevor de Cleene when being badgered by Treasury mandarins he said (something like)," At the end of the day - it's all money" ! 
Regards, Ergophobia

Sorry but your context/meaning is lost to me.
regards