1 Sep 2011

Business confidence shaken by recent market turmoil

7:12 am on 1 September 2011

Recent turmoil on equity markets about slowing global growth has shaken business confidence.

A monthly survey by the National Bank found optimists outnumber pessimists, but sentiment tumbled 13 points, with a net 34% of firms expecting better times ahead.

While caution led profit, export, employment and investment intentions to fall, a steady 43% expect activity in their own business to pick up.

Chief economist Cameron Bagrie says it appears financial market volatility and signs of cooling US growth have not been felt in New Zealand.

He says commodity prices and confidence are holding up, plus New Zealand also has one off events to look forward to such as the Rugby World Cup and the Christchurch rebuild.

Export intentions fell sharply to the lowest level in just over two years, which Mr Bagrie says reflects jitters about foreign demand, and a persistently high New Zealand dollar.

The survey indicates economic growth of about 4.5%, though Mr Bagrie cautions that it's coming off a low base and won't feel like strong growth.

Inflation expectation rose to its highest level in nearly three years, at 3.5%, but fewer firms expect to lift prices.

Mr Bagrie says while domestic activity would justify a rise in the Official Cash Rate from 2.5% to 3% later this month, he expects international jitters to stay the Reserve Bank's hand until December.