6 Jul 2011

Firms upbeat about business conditions

4:28 am on 6 July 2011

New Zealand firms have put the initial shock of February's major earthquake in Canterbury behind them, with business confidence recovering strongly.

But the Institute of Economic Research (NZIER) cautions that the upbeat mood among firms about the future is not necessarily matched by reality.

The NZIER quarterly survey of business opinion found optimists outnumber pessimists, with a seasonally adjusted 31% of respondents expecting business conditions to improve in the next six months.

That is a turnaround from the net 11% expecting a downturn in the previous survey.

The institute says the improvement reflects modest economic growth and a pick-up in activity following the disruption caused by major quakes in Canterbury.

But the economic forecaster cautions parts of the economy remain weak, with firms hiring fewer workers in the June quarter, while subdued demand is the biggest constraint to growth.

That has prompted firms to cut production, while they have struggled to raise prices despite rising costs.

The survey shows the manufacturing sector has been buoyed by new orders. But the Manufacturers and Exporters Association says its members are feeling low as the strong New Zealand dollar shrinks bottom lines.

In the retail sector, sales were flat and profit margins tight.

The NZIER expects the official cash rate to remain on hold at 2.5% until nearly next year.

In June, the National Bank's monthly survey of sentiment found a net 47% of respondents expected general business conditions to improve, up 9 points on May.