Business outlook perks up despite inflation threat

BusinessNZ's Economic Conditions Index is at a nearly seven-year high, indicating a positive outlook for economic and employment growth.The economic growth/performance indicators in the June quarter.

Soaring commodity prices are helping boost business confidence, although the forecast return of inflation pressures next year may dampen down sentiment, BusinessNZ said today.

Its Economic Conditions Index is at a nearly seven-year high, indicating a positive outlook for economic and employment growth.

The economic growth/performance indicators in the June quarter were significantly better than a year earlier, Business NZ said.

"Tentative growth from mid-2009 is now being transformed into much stronger growth as world demand increases. This is evidenced by a strong growth in commodity prices which is impacting positively on New Zealand's terms of trade and current account balance," economist John Pask said in the organisation's quarterly report.

In April, New Zealand posted its first annual trade surplus in nearly eight years, reflecting the impact of significantly improved commodity prices.

Business/consumer confidence indicators improved from the March quarter, and recovered to levels seen a year earlier, as improving confidence over the last year was finally shown in greater investment.

The report tracking 33 indicators was completed before the Government delivered its budget last month, including significant cuts to company and personal tax offset by a rise in GST to 15 percent.

Monetary policy/pricing indicators slipped from the previous quarter and were down on a year ago, ahead of forecast interest rate rises and mounting inflationary pressures.

The Consumers Price Index is expected to reach 5.9 percent next year, well above the top of the Reserve Bank's target band due to a hike in GST and tobacco tax, higher ACC levies for motorists and the introduction of the Emissions Trading Scheme.

Finally, labour market indicators were higher than a year earlier and slightly higher than the previous quarter on the back of fairly strong employment growth.

Economists forecast modest growth in gross domestic product of around 3.5 percent for the next two years.