NZ business confidence continues to climb, driven by optimism in construction

Monday 31st August 2009

New Zealand business confidence continued to improve in August amid a resurgent construction sector and stabilising property market.

A net 34% of firms expect general business conditions to improve in the next 12 months, up from a net 19% in July, according to the National Bank Business Outlook. Residential construction soared to a 15-year high net 48% picking better times ahead, with all indicators bar commercial construction recording an improvement.

The housing market has shown signs of stabilising for several months, with QV Valuations posting its third straight improvement in values earlier this month.

Last month, central bank Governor Alan Bollard said demand for property was being stoked by low interest rates and rising net migration. Some economists speculate the resurgent market has hindered Bollard’s ability to cut rates further for fear of reigniting a housing bubble.

“While we should be cheerful that the property market is responding to policy stimulus and helping the economy emerge from recession, we should not be surprised that it is keen to push on,” said ANZ National Bank chief economist Cameron Bagrie. “A ‘mini-boom’ in the housing market risks exacerbating existing problems” if it encourages a return to “borrow and spend habits,” he said.

A net 26% of respondents expect an improvement in their own activity up from 13% last month, while profit expectations returned to positive territory at 1% for the first time since 2007, from a negative 14% in July. Investment intentions also re-entered the black with a 2.3% expecting to boost investment in August, from negative 2.3% a month earlier, while export intentions climbed to a 10-month high 21% from 14%.

Bollard has expressed concern that the country is not experiencing an export-led recovery. Still, the high New Zealand dollar was out of the central bank’s control and until the greenback started appreciating, the kiwi would remain at these levels, he said on Radio New Zealand today.

The kiwi slipped to 68.17 U.S. cents after the announcement from 68.28 cents immediately prior. Inflation expectations eased to 2.5% from 2.6% a month earlier, while pricing intentions climbed to a net 15% from 13%.

“The pick-up in capacity utilisation and employment intentions suggests that dis-inflationary pressures may start to dissipate and there is less risk of inflation falling through the bottom of the band,” said Jane Turner, economist at ASB.

Businesswire.co.nz

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