Business confidence points to economic expansion

New Zealand: sharp spike in business confidence points to continued economic expansion

* Business confidence at decade high

* Headline index jumped 60 points in 3Q

* Profitability improved markedly

The NZIER Quarterly Survey of Business Opinion (QSBO) released this morning showed a marked improvement in the third quarter, with the headline reading surging to +36 from -25. This suggests that a net 36% of firms surveyed last quarter expected the economy to improve in the next six months, after 10 straight quarters of expecting deterioration in the economy. Firms appear cautiously optimistic, however, with their growing confidence yet to translate to new investment and increased hiring.

Of the ten major components, seven remained in negative territory in 3Q, but most improved markedly on the previous quarter. The largest improvement was toward profitability in the next three months – though a net 3% of respondents still expect profits to decline near term, the index jumped 22 points. Only two components worsened: costs over the last three months and costs in the next three months.

Capital utilization fell from 91% to 88% in 3Q, although this was not surprising. Some payback was expected from the previous quarter, when the NZIER measure of capital utilization posted its largest quarterly increase on record. In addition, there remains a lot of spare capacity in the economy owing to the nation’s prolonged recession, which recently came to an end in 2Q (at least technically). As the NZIER highlighted today, this spare capacity has depressed prices, with a majority of firms reporting declining prices for three straight quarters. The NZIER survey today, however, confirmed our expectations that the New Zealand economy will continue to expand in 2H09 (chart below). We anticipate GDP growth to average a healthy 0.5% in 2H09.

Sharp Spike In Business Confidence Points To Continued Economic Expansion (pdf)

ENDS

© Scoop Media