Business confidence highest in more than three years, led by construction

New Zealand business confidence rose to its highest in more than three years in June, led by the construction sector.

A net 50.1 percent of firms surveyed expect general business conditions to improve in the year ahead, up from 41.8 percent in May, and the highest level since early 2010, according to the ANZ Business Outlook. Those seeing a pickup in their own business activity in the year ahead rose to a net 45 percent, up from 34 percent.

Sentiment is highest in the construction sector, with a net 73.4 percent seeing better times ahead for the economy, followed by services at 55.2 percent, retail at 51.5 percent and agriculture at 39.6 percent. Manufacturing lagged other sectors at 38.7 percent but was still dramatically higher than the 6 percent recorded a year earlier.

Improved business confidence combined with upbeat consumer confidence pointed to the potential for 4.4 percent growth by the end of the year, ANZ says. That is ahead of the central bank's expected 2.4 percent growth rate and the economy may not have the capacity to grow that fast.

"This may be a case of 'the spirit is willing but the body is weak'," ANZ New Zealand chief economist Cameron Bagrie says in a statement. "Given the skill and broader resource mismatches in the New Zealand economy, we are sceptical that such a growth rate is achievable – it's certainly not sustainable."

The survey showed profit expectations, employment and investment intentions all lifted, led by the construction sector, ANZ says.

Some 25.9 percent of firms expected profits to rise in the next 12 months, up from 19.7 percent last month and the highest since April 2010. A net 17 percent expected to take on more workers, up from 9.8 percent last month and the highest in two years.

Meanwhile, some 22.3 percent expected to increase investment, up from 16.5 percent last month and the highest since late 2003.

Pricing measures remain benign but are creeping up, led by construction, with a net 25.8 percent of firms expecting to raise prices, up from 20.3 percent last month.

Inflation expectations lifted slightly at 2.3 percent from 2.22 percent last month.

The survey canvased the views of 414 businesses.

(BusinessDesk)