Tue, 06 Oct 2009 3:06p.m.
A key survey shows business confidence surging to its highest level in a decade, but economists are worried by a big gap between latest results and expectations.
The New Zealand Institute of Economic Research's (NZIER) quarterly survey of business opinion (QSBO) found a seasonally adjusted net 27 percent of firms were optimistic about the general business situation in the September quarter.
That was up from 14 percent net pessimists in the previous three months.
At the same time, the gap between the trading activity experienced in the September quarter and the activity firms were expecting in the December quarter was the highest on record, NZIER said publishing the survey today.
For the three months to the end of 2009, a seasonally adjusted net 17 percent of firms in the survey are expecting an increase in trading activity.
That compared with the net 20 percent that reported a decline in activity in the September quarter and the net 35 percent reporting a decline in the June quarter.
NZIER said firms' expectations of activity was generally reliable as a guide to future gross domestic product growth, although there had been false signals around past turning points. For that reason it was interpreting the extent of optimism cautiously.
ANZ bank said the QSBO suggested the economy was heading for 3 percent-plus growth next year, which would be a solid result.
The large disconnect between what firms were experiencing and what they were expecting was in part natural, ANZ said.
There would always be some sort of lag between what was experienced and expected when the economy was at a turning point.
While a better feel good factor was percolating, aspects appeared to lack substance, and that would be key to watch going forward.
The ANZ economists said they respected what leading indicators such as the QSBO were showing and expected economic momentum to start to build over the latter part of this year and into 2010.
But the QSBO also indicated considerable caution. Partly that reflected the natural lagging relationship between some key indicators, such as employment and growth, but the size of the gap was flagging deeper forces at work.
"Profits remain under pressure, and in that environment firms are naturally reticent to commit to investing and hiring," ANZ said.
It remained to be seen how much of the improvement in confidence merely reflected the fact the economy was looking up from a deep hole in the first place.
NZIER said the recession had freed up significant spare capacity in the economy, with capacity utilisation of manufacturers and builders falling from 90.7 percent to 88.4 percent and firms reporting labour remained easy to find.
A net 39 percent of firms reported declining profits in the September quarter, although the outlook was better with only a net 3 percent of firms expecting profits to decline in the December quarter.
Hiring had remained negative, despite a modest improvement to -29 percent in the September quarter from -31 percent, with firms' intentions for the December quarter for no more job losses.
Firms continued to shed labour for the sixth consecutive quarter in the three months to September, but that was a relatively short period of time compared to 14 consecutive quarters of declines in the 1997/98 recession, NZIER said.
NZPA