19 Dec 2013

Businesses face challenges despite rising confidence - ANZ

7:15 am on 19 December 2013

ANZ Bank chief economist Cameron Bagrie says businesses face competition for resources and inflation pressures, despite having one of the highest positive outlooks since 1999.

Sixty four percent of businesses are optimistic about their prospects in ANZ's December business outlook.

Employment intentions are the strongest it's seen since September 1994.

ANZ's composite growth indicator is also signalling the potential for economic growth to exceed 5% over the first part of next year.

But Mr Bagrie says there are issues firms will face, particularly around how to meet growing demand and the supply side capacity such as whether there are sufficient buildings and staff on the ground.

He says it's only possible to meet demand if the supply side inputs are there.

Mr Bagrie says the survey suggests the demand is there, but attention needs to be given to the supply side inputs because if they are not there then it's impossible to meet the demand.

He says strong growth could translate into inflation pressures for businesses and one of the variables to consider over the next couple of years is underlying productivity growth.

"If we've got decent underlying productivity growth you know we'll get reasonable growth without too much inflation, if we've got weak productivity growth we'll get low growth and we'll have a little bit of inflation and that's a bad outcome."

Mr Bagrie says businesses also need to be prepared for the Official Cash Rate to rise early next year.