Business confidence holds steady at three-year high in second quarter - NZIER

"The economy is settling into a growth pattern," institute chief executive Jean-Pierre de Raad says.

Business confidence held at a three-year high in the second quarter as domestic trading activity eased, according to the latest Quarterly Survey of Business Opinion from the New Zealand Institute of Economic Research.

A net 31 percent of businesses remained optimistic in June, seasonally adjusted, unchanged from the March quarter, the institute said. Last quarter was the highest since March 2010 when a net 33 percent were optimistic.

Domestic trading activity, which is closely aligned with economic growth, eased in the latest quarter with a net 4 percent of firms experiencing a pickup in their own activity, down from a net 10 percent three months earlier, the institute said. That reading is consistent with more than 2 percent annual economic growth in the June quarter, the institute said.

"The economy is settling into a growth pattern," institute chief executive Jean-Pierre de Raad says. "Businesses continue to be optimistic, similar to last quarter. They are acting on that optimism with investment and hiring which had been the missing ingredient in the recovery that we are seeing right across the regions."

A net 9 percent of firms expect to hire more workers in the next quarter, up from a net 5 percent last quarter. A net 4 percent of firms expect to invest more in buildings, up from 3 percent last quarter, while a net 10 percent plan to invest more in plant and machinery, up from 8 percent the previous quarter.

The economic recovery is uneven across regions, with a surge in Canterbury, gradual growth in Auckland and contraction in Wellington, the institute said. In the North Island, the drought negatively affected the Waikato and Bay of Plenty regions.

Costs and prices ticked up in the June quarter but remain at historically modest levels, the institute said. Much of the costs and price pressures are concentrated in Canterbury and are low elsewhere, the institute said.

For 27 percent of Canterbury firms, capacity is a constraint to growth, the institute said. That compares with 10 percent of firms in the rest of New Zealand, up from 6 percent last quarter, the institute said.

Activity is growing strongly for manufacturing and building, largely driven by Canterbury, the institute said. Service sales are growing gradually while financial services sales slowed in line with lower mortgage approvals in recent months. Growth in retail sales also slowed.