National Bank survey shows business confidence gathering momentum ahead of Christchurch rebuild

By Hannah Lynch

New Zealand business confidence regathered momentum at the start of the year, with a pick-up in the construction sector leading the way, according the National Bank’s Business Outlook survey.

A net 28 percent of survey respondents expect better times for the economy in the year ahead, up 11 points from the last survey in December, while a net 31 percent of firms predict their own activity will improve, up 5 points.

A net 44 percent of businesses expect a lift in residential construction-related work, up from 26 percent in December, while commercial construction intentions turned positive a net 30 percent of respondents picking growth, compared to 3.2 percent expecting a contraction in December.

“The construction sector is now most confident in regard to the general business environment,” Cameron Bagrie, the bank’s chief economist, said in his report. “Canterbury dominates perceptions towards commercial construction” with the prospect of a looming rebuild stoking firms’ optimism, he said.

The survey follows last month’s quarterly survey of business opinion from the New Zealand Institute of Economic Research, which showed a slow-down in companies’ own activity, and a dimming of business confidence in the tail-end of last year. The economic think-tank warned this quarter the economy faced some weaknesses after businesses unexpectedly built up their inventories in the last three months of 2011.

Today’s survey showed a better tone across most indicators, with hiring intentions up 5 points to 7.7 percent of firms looking to take on new staff this year, and a net 3.6 percent of respondents picking the jobless rate to drop, rather than the 0.9 percent picking it to rise in December.

Export intentions increased to 19 points from 16 points, while profit expectations also rose to 10 points from 8 points in December.

Companies’ investment intentions bucked the trend slipping to 11 points from 14 points in December.

Inflation expectations continued to fall in the latest survey, as the Reserve Bank takes a patient approach to monetary support. Firms inflation expectations fell to 2.7 percent from 3 percent, a pull back from a peak of 3.5 percent six months ago.

Bargie said the survey showed 2012 had started in good cheer, with the local outlook continuing to be dominated by a volatile global scene, fixing the nations balance sheet, rebalancing, a positive income shock and seismic activity.

The survey indicates economic growth of about 2 percent through 2012, accelerating to a pace of 3 percent growth over the subsequent two years, Bagrie said

“This is hardly stellar but extremely respectable across all peers when you consider global challenges, including a Greek Tragedy, hurly burly European politics, growing debate over the ‘true’ state of the Chinese economy, and a New Zealand dollar that continues to track global as opposed to local fundamentals,” Bagrie said.

Here is Bagrie's summary:

We focus on the trends in business confidence and its subcomponents as a directional gauge of momentum as opposed to what it says about the absolute growth rate. Our composite measure is flagging 4 percent growth, a figure we suspect overshoots reality. However, the message at the start of 2012 is simply one of improvement, so we like its directional signal.

The outlook for the New Zealand economy continues to be dominated by the interaction of five significant shocks: a volatile global scene; fixing the national balance sheet; rebalancing; a positive income shock; and seismic events. We envisage ongoing volatility across the business cycle (mixed stop-start economic signals) amidst a lower trend growth rate (there is growth but we need to work harder to grasp it) as structural and cyclical forces clash.

We are caught between penance and opportunity.

(BusinessDesk)