5 Apr 2017

Confidence dips with staffing concerns as inflation rises

6:16 am on 5 April 2017

Business confidence has fallen to its lowest level in a year as firms find it harder to hire staff and face higher costs.

no caption

Photo: 123 RF

The Institute of Economic Research (NZIER) said optimism about the general economic outlook fell to a seasonally adjusted 16 percent in the three months in March, compared with 26 percent the previous quarter.

A year ago the headline measure was zero.

"The decrease in confidence comes despite businesses reporting their own activity holding firm, suggesting annual growth in the New Zealand economy will remain solid around 3 percent over the coming quarters," said NZIER senior economist Christina Leung.

Businesses expected higher profits and exports, and to invest more, but said they were finding it harder to get staff.

The building sector remained the most optimistic and was regarded as the driver of growth.

Ms Leung said inflation pressures were also strengthening as businesses passed on high costs to customers.

"Along with increasing capacity pressures that we're seeing particularly in the building sector, it does suggest a higher lift in inflation over the coming year."

She said stronger inflation should prompt the Reserve Bank to start a series of gradual interest rate rises from the middle of next year.

Confidence eased in the regions that were among the most optimistic in the previous survey - Auckland, Wellington and Southland.

But regions adjoining Auckland - Waikato, Bay of Plenty and Northland - showed improved sentiment.

The NZIER survey matches other monthly confidence measures, which have found less confidence about the broader economy but companies strongly upbeat about their own prospect.

Get the new RNZ app

for ad-free news and current affairs