24 Jan 2014

Economy expected to surge

7:31 am on 24 January 2014

Businesses and consumers expect the economy to surge this year, despite the prospect of higher interest rates.

Consumer confidence has jumped to its highest level since before the global financial crisis.

The ANZ-Roy Morgan consumer confidence index rose six points to 136 in January - a level not experienced since January 2007. A reading above 100 shows optimism, while below indicates pessimism.

ANZ chief economist Cameron Bagrie said the strengthening New Zealand economy has been reflected in more jobs, wage growth and rising house prices - and that's making people feel upbeat.

Mr Bagrie said the bank's composite growth indicator, which combines its business and consumer sentiment surveys, suggests that the economy may grow 5 percent by early 2015.

However he thinks it will be closer to 3.5 percent given the national balance sheet is weak, the household savings rate at zero indicates New Zealand is on a borrow and spend recovery, interest rates will increase over 2014, there are capacity constraints and the New Zealand dollar is overvalued.

But Mr Bagrie says a 3.5 percent real gross domestic product growth over the next 12 months would still put the country at or near the top of the OECD ladder.

Meanwhile, manufacturing activity expanded for the 15th consecutive month in December, with few signs of slowing.

The Reserve Bank is expected to start lifting interest rates soon to tame rising inflation pressures.