4 Oct 2016

Business confidence at strongest level in two years

2:19 pm on 4 October 2016

Business confidence has risen to its highest level in two years, driven by strong construction, tourism and a lift in dairy prices.

Building site in an East Auckland suburb

Strong construction has helped boost business confidence. Photo: RNZ / Claire Eastham-Farrelly

The Institute of Economic Research's (NZIER) survey of business opinion for the September quarter shows 26 percent of firms expect the economy to improve over the rest of the year, compared to a 19 percent optimism level in the previous survey.

Meanwhile, 32 percent of firms expect a better outlook for their own businesses, which is also the highest level in two years.

NZIER senior economist Christina Leung said the survey pointed to annual economic growth of 4 percent, although it was likely to average about 3 percent over the next few years.

However, the survey showed increasing pressures in the labour market. A net 27 percent of those surveyed wanted to hire staff - the highest level in 43 years - but they were struggling to find suitably skilled staff.

"It looks to be skills shortages are becoming more acute and are hindering the extent to which businesses can increase head count."

She said strong immigration was going some way to filling the skills gap, but it was still not enough.

Ms Leung said there were few signs at present that the labour shortages were feeding into wage pressures, and some firms had been cutting prices to remain competitive and make sales.

She said that meant inflation pressures were weak and were likely to remain so for the near future, which would reinforce the case for more interest rate cuts by the Reserve Bank.

"The bank's primary focus is to lift annual inflation back towards its midpoint 2 percent target and we expect it will cut its cash rate in November and once more in the middle of next year to a low of 1.5 percent."

Last week, the ANZ Bank's monthly business confidence survey showed firms were most optimistic about their own outlook in two years, and confidence in the broader economy was at a 17-month high.