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Business confidence shows first gain in eight months in post-election bounce

Business confidence advanced for the first time in eight months in October, rebounding from a two-year low as certainty returned following last month's general election.

Tina Morrison
Wed, 29 Oct 2014

New Zealand business confidence advanced for the first time in eight months in October, rebounding from a two-year low as certainty returned following last month's general election. The New Zealand dollar rose after the survey was released

A net 26.5 percent of firms are optimistic business conditions will improve in the coming year, up from a net 13.4 percent last month and the first increase since confidence hit a 20-year high of 70.8 percent in February, according to ANZ Bank's latest Business Outlook survey. Still, firms expectations for an improvement in their own activity was little changed at a net 37.8 percent from 37 percent last month.

Last month's survey was taken before the outcome of the Sept. 20 general election, where incumbent Prime Minister John Key and his National government were returned for a third term. This month's survey showed expectations for profitability, investment, and hiring edged lower while export and pricing intentions lifted.

"We put September's decline in confidence down to politics, and this month we say the same," ANZ chief economist Cameron Bagrie said. "Confidence is still well down from its February euphoria but readings are still north of average. Life on the prairie for the average business may not be stellar but it looks solid."

The New Zealand dollar rose as high as 79.33 US cents from 79.19 cents immediately before the 1pm release of the survey. The local currency was recently trading at 79.23 cents.

The business confidence report comes ahead of the Reserve Bank's review of interest rates tomorrow where governor Graeme Wheeler is expected to keep the benchmark rate at 3.5 percent following four hikes between March and July.

Since the start of the year, expectations for New Zealand economic growth have slowed, with the Treasury cutting its gross domestic product forecast to 3.8 percent in the year through March 2015, from a previous estimate of 4 percent.

A report last week showed New Zealand consumer prices are accelerating at an annual rate of 1 percent, lagging the Reserve Bank's 1.3 percent forecast and at the bottom of the bank's 1-to-3 percent target band. Lower inflation means the Reserve Bank will probably hold off raising the official cash rate until late 2015, according to economists.

Today's survey showed a net 54 percent of firms expect interest rates to rise further, up from 50.6 percent last month. Inflation expectations were little changed at 2.48 percent from 2.46 percent with a net 24.2 percent expecting to raise prices, up from 19.2 percent last month.

A net 25 percent expected to increase exports, up from 22.1 percent last month.

Meanwhile, firms expectations for profits slipped, with a net 17.2 percent expecting higher earnings, from 19.2 percent last month. Those intending to employ more staff also slipped to a net 19.4 percent from 21.3 percent, while increased investment intentions weakened to a net 16.3 percent from 20.3 percent.

Sentiment in the residential construction sector declined but was up in the commercial sector.

Business confidence was weakest in the agricultural sector, reflecting a decline in prices for dairy farmers, and highest for the services sector.

(BusinessDesk)

Tina Morrison
Wed, 29 Oct 2014
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Business confidence shows first gain in eight months in post-election bounce
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