New Zealand Institute of Economic Research (Inc)
Media release, 17 January 2017
NZIER Quarterly Survey of Business Opinion
Embargoed until 10am 17 January 2017
The latest NZIER Quarterly Survey of Business Opinion shows business confidence remained high at the end of 2016, with a net 26 percent of businesses expecting an improvement in economic conditions over the coming months. Although there was a modest softening in demand in their own business, activity indicators remain higher than a year ago. This indicates continued solid momentum in the New Zealand economy, which should provide a buffer against the downside risks from unexpected events both here and abroad.
Businesses were particularly buoyant in Southland, with confidence at its highest level since early 2014. The continued recovery in global dairy prices has supported higher business confidence in the rural regions over the past year. Business confidence was also high in Wellington, with little sign the recent earthquakes dented confidence.
Confidence remains highest in the building sector
Business confidence was high across the sectors, but remains strongest in the building sector. This reflects continued strong demand in construction, 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.
Meanwhile, solid household demand underpinned a rebound in retailer confidence, with retailers looking to invest for expansion. This is despite weakening profitability in an increasingly competitive environment.
Pricing indicators point to a pick-up in inflation
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 percent of businesses raising prices in the December quarter – a turnaround from the net 4 percent 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. We expect the Reserve Bank will keep interest rates on hold until mid-2018, before embarking on a gradual tightening cycle.
The recovery in global dairy prices has supported a strengthening in business confidence in the rural regions
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