1 Nov 2013

Business confidence still at 14-year high

7:45 am on 1 November 2013

The ANZ's monthly gauge of business sentiment shows optimists outnumber pessimists, with a net 53% of firms expecting economic conditions to improve in the coming year.

That compares with a net 54% expecting better times ahead in the previous period, which was its highest level since 1999.

Inflation expectations rose slightly to 2.4%, but fewer firms signalled they intend to raise prices.

ANZ chief economist Cameron Bagrie says the economy is in a sweet spot, despite challenges such as low deposit restrictions, a high dollar and signs interest rates will rise next year.

"The real encouraging sign about the reading for this month is that businesses looked through all of those dynamics, had a bit of a glance, a bit of a look and have come to the conclusion - when all's said and done - this little economy is still performing pretty well."

Mr Bagrie says the economic downturn has forced many businesses to become more productive, and that will ultimately improve bottom lines when activity picks up.

However, he warns the upswing may be short-lived due to a lack of business investment and labour shortages.

Mr Bagrie says inflation pressures remain subdued at the moment.

All five categories that measure business confidence were elevated in October, with export intentions growing the most.

Commercial construction intentions was the only sub-sector which declined a little, although it still remains in positive territory with a net 24%.

Fewer businesses expect prices to increase over the next year, while more respondents expect interest rates to move up.

When ANZ's business and consumer confidence surveys are combined, they indicate the economy will grow more than 4% by early next year.