Business confidence on a roll in NZ


Business optimism is on the rise in New Zealand for the first time since June 2001

By Geoff Hiscock
CNN Asia Business Editor

WELLINGTON, New Zealand (CNN) -- Business optimism is on the rise in New Zealand for the first time since June 2001, the latest research report shows.

A net 23 percent of companies expect general business conditions to improve over the next six months, the New Zealand Institute of Economic Research (NZIER) found in its most-recent quarterly survey.

That compares with the previous quarter, when a net 10 percent of businesses expected a deterioration.

The institute said Thursday that confidence increased strongly across all sectors during the March quarter, with the largest improvement in the services sector.

The building sector, where a surge in the housing market is lifting sales expectations, is now the most optimistic.

The institute reports that businesses are expecting higher export sales and also increased sales at home.

Warning on expectations

But the report warned there is a risk these expectations will not be met.

"While we believe world demand will recover in 2002, we do not expect growth to be rapid," it stated.

The institute said inflationary pressures are building, with capacity use at its highest level since December 1999.

It believes the central Reserve Bank of New Zealand is likely to respond to this pressure by raising interest rates -- something it started doing on March 20, when it lifted the official cash rate to 5 percent, from 4.75 percent.

That surprise decision made New Zealand, with Sweden, the first countries in the industrialized world to raise rates since the September 11 terror attacks in the United States.

Reserve Bank governor Don Brash cited inflation fears in announcing the March 20 increase and foreshadowed further rate rises in the months ahead.

Rate rise likely

HSBC Australian senior economist Anthony Thompson said Thursday the results of the business confidence survey reinforced HSBC's view that the New Zealand Reserve Bank will boost rates by another quarter of a percentage point next week.

Thompson cited the survey's finding that a net 32 percent of businesses expect to raise their selling prices in the June quarter, versus 18 percent in the previous survey.

Still, New Zealand's economy grew a less-than-expected 0.6 percent in the December 2001 quarter, suggesting inflation pressures still have some way to go.

Government statistician Brian Pink, releasing the GDP data on March 28, said growth for the full year was 2.4 percent.

Most economists predict growth in 2002 will be about 2.6 percent.