The year that was 2016 ended on a high for business confidence, the New Zealand Institute of Economic Research’s Quarterly Survey of Business Opinion shows.
A net 26% of businesses expect an improvement in economic conditions over the next few months.
Demand in their own business had a slight easing, but activity indicators remain higher than a year ago, pointing to continued solid momentum in the New Zealand economy, and act as a buffer against the downside risks from unexpected events both locally and abroad.
Business confidence in Southland reached its highest level since early 2014, as the continued recovery in global dairy prices has supported higher business confidence in the rural regions over the past year. And high confidence was clear among Wellington businesses, showing the recent earthquakes hadn’t dented their confidence.
The building sector reflected the strongest confidence, as demand in construction continues, although architects’ work in their own office suggests some softening in pipeline growth in residential, commercial and Government construction. There has also been an easing in shortages for both skilled and unskilled labour in the building sector, likely reflecting the effects of the surge in net migration over the past year.
Capacity utilisation rebounded to 92.7% in the December quarter, and more businesses reported capacity as a constraint. Businesses are finding it easier to raise prices, with the net 7% of businesses raising prices in the December quarter – a turnaround from the net 4% cutting prices in the previous quarter.
Improved pricing power points to a lift in inflation over the coming year. With the risk of persistently low inflation dissipating the Reserve Bank has indicated it is unlikely to cut interest rates any further. The NZIER expects the Reserve Bank will keep interest rates on hold until mid-2018, before embarking on a gradual tightening cycle.