Broad business confidence falls in December, but still points to 3-4% growth

Overall business confidence in New Zealand fell for the third month in a row in December, but indicators still point to 3-4% GDP growth over the coming year, the latest National Bank Business Outlook Survey showed. Business confidence about the wider economy fell 4% from November, to a net 39% of respondents expecting better times for the economy in the year ahead. National Bank economists said confidence fell for all the main industry groups monitored, although firms' own activity outlook improved 3% to a net 37% expecting better times in the next year. The survey, particularly measures of firms' confidence about themselves, is closely watched by the Reserve Bank of New Zealand due to its close correlation with GDP growth. The Reserve Bank said on December 10 that it expected to keep the Official Cash Rate on hold at 2.5% until 'around the middle' of 2010.

The sectoral picture across each measure is somewhat mixed. But generally speaking the construction sector showed an easing trend while others picked up the baton. Construction has gone from being top of the pops for activity, profits, employment and investment to rank 2nd, 4th, 3rd and 1st respectively. The North Island showed an improving trend and is now most optimistic when it comes to own activity, profits and investment. Conversely, perception across all these indicators eased in the South Island, although the south remains more optimistic regarding hiring staff. When we roll such readings from the survey into our composite growth indicator, the economy could well be on track for 3 to 4 percent growth. Let the good times roll. With economic improvement there is the inevitable pressure on prices. While inflation expectations eased a tad, pricing intentions nudged higher. A net 18 percent expect to be pushing up prices over the coming year. This is still low but the trend has been rising for three months.