New Zealand business confidence improves, but rates on hold

New Zealand business confidence rose in the three months to March as uneven and modest growth leaves the central bank with plenty of time before raising interest rates, a private think tank said on Wednesday. A net 13 percent of firms surveyed expected general business conditions to improve in the next six months against the previous quarter's net 0 percent optimism, the New Zealand Institute of Economic Research said in its quarterly survey of business opinion (QSBO).
On a seasonally adjusted basis a net 24 percent of firms expected general business conditions to improve from 3 percent who expected a deterioration previously. A net 24 percent also saw a rise in their own activity from 13 percent in the previous survey.
"The survey shows most indicators are going sideways, suggesting a gradual and patchy economic recovery," said NZIER principal economist Shamubeel Eaqub. He said firms' own trading activity over the past quarter had edged up slightly, to be consistent with an annual growth rate of 1.8 percent.
The bounce back in sentiment was based largely on expectations of a recovery rather than reality. The New Zealand dollar was unmoved by the survey, sitting at around $0.8155. The survey showed large parts of the economy were stagnant, with a pick up in the earthquake-hit region of Christchurch, but the rest of the country flat. On a seasonally adjusted basis, the survey's headline measure of sentiment showed 24 percent of respondents were positive about the general business environment, compared with a 3 percent pessimism level in the previous survey.
Domestic trading activity improved slightly, with a flat showing for the current trading activity from a 4 percent pessimism level, but firms were more positive about their future outlook. A seasonally adjusted 24 percent of firms expected their own activity to improve from a positive 13 percent in the previous survey, the NZIER said. The survey was seen backing the view that Reserve Bank of New Zealand (RBNZ) can keep interest rates on hold for longer.
"The RB (Reserve Bank of NZ) is firmly on hold for some time, at least until the middle of next year and possibly even later," Eaqub said. The RBNZ is expected to hold its cash rate at a record low 2.5 percent at its next review on April 26, given subdued inflation pressures, a patchy global outlook, and an elevated New Zealand dollar.
The survey's measure of capacity utilisation eased to 89.4 percent from 90.2 percent. The survey showed easing costs, except in the Christchurch area. Pricing intentions indicated inflation would be contained over coming quarters. The NZIER said the labour market was flat with hiring intentions improving driven by the need for workers in the Christchurch region, while the rest of the country was subdued.