Two negatives in yesterdays' National Bank business confidence survey: the retail sector was the only part of ht economy to record a decline in expectations about their own activity, employment, and investing.The other negative was an overall drop in inve
Two negatives in yesterdays’ National Bank business confidence survey: the retail sector was the only part of ht economy to record a decline in expectations about their own activity, employment, and investing.
The other negative was an overall drop in investment intentions, which fell form a net 10% to a net 8% of firms who expect to invest more in their businesses over the coming year. It is, however, a shift within the survey’s margin of error.
In the main, though, the survey was surprisingly upbeat. A number of observers – myself included – expected this latest survey to show a slight dorp in confidence, after what looked like premature highs late last year.
The continued improvement looks like something more than just a post recession “whew!” factor.
ANZ National Bank’s chief economist Cameron Bagrie acknowledges this is often a factor in post-recession business mood surveys.
“But we have been on an improving trend now for just under a year. Growth has followed. Admittedly it’s not strong, but growth is still growth.”
The overall survey results show a net 42% of respondents expect an improvement over the coming year, up from 37% in December.
“When we roll such readings from the survey into our composite growth indicator, the economy could well be on track for 4% growth,” Mr Bagrie said.
He is not the only economist picking such a rise. Bank of New Zealand economist Craig Ebert also suggested the business mood suggests annual GDP will go to “at least” 4% by late this year.
The upbeat mood though – especially firms’ indications about their own pricing intentions, which are rising – could mean the Reserve Bank will have to increase the official cash rate earlier than its anticipated timing of the middle of the year.
The current rate is 2.5%, which is low, so as to stimulate economic growth.
With the economy’s need for stimulus diminishing, and with signs inflation may be on the return path, Reserve Bank governor Alan Bollard may have to move earlier than June.
The Reserve Bank “should be nervous about its ‘mid-2010 profile,” says TD Securities strategist Annette Beacher.
“The risks are rising of delayed RBNZ action creating another boom/bust business cycle,” she said.
