Business confidence bounced back in April, survey shows

Business confidence suggests 4-5% GDP growth

Business confidence bounced back in April to levels last seen in February, the National Bank’s Business Outlook survey shows. National Bank Senior Economist Khoon Goh said the survey was consistent with GDP growth of 4-5% in the year ahead.

This business confidence survey will be closely watched by the Reserve Bank, which will decide on Thursday morning what to do with the Official Cash Rate. It has previously said it was likely to be begin raising the OCR from the ‘middle of 2010′ and most economists expect a rate hike in either June or July.

Further signs of a strong rebound are likely to encourage an earlier rather than later hike, although core inflation remains subdued. The survey found more businesses expected interest rates to increase and rose to the highest level since November 2005.

Here is the full National Bank release below:

Confidence abounds within the National Bank Business Outlook survey.

"Headline business confidence rose to +50 from +43 a month ago, taking confidence back to levels seen in February. When we look at the sectoral mix, there is a pretty consistent picture: firms’ assessment towards the general economy is extremely perky. Even the agriculture sector has recorded an improvement in business confidence in the month (up 2 points to +28) despite the drought, though the level continues to lag those of the other sectors. Perkiness towards the general economy is spilling over into firms’ assessment towards their own business, with the own activity reading rising 4 points to +43, the highest since May 1999 and reverses the lull seen in March.

"The improvement in own activity was across all sectors, with the construction sector recording not only the largest monthly increase (up 12 points to +56), but also has the highest level. The positive expectations towards their own businesses look to be spilling over into other survey indicators. Our composite growth indicator from the survey continues to strengthen. It is now signaling year-on-year growth of 5 percent over the coming year. Slowly but surely the economic recovery is firming – or what seems to be accelerating. The survey is flagging the potential for a typical strong pro-cyclical upswing in momentum, with the possibility of 4 to 5 percent growth in the year ahead. At this stage, investment intentions are lagging the pick- up in firms’ own activity expectations.

"But there is no doubting the improving trend. We take particular heart from the rising trajectory for profits. If the expectations reading is maintained and matched by reality, then increased hiring and investment will naturally follow. In fact we already seem to be seeing this occurring across some listed companies. If it continues and small-to-medium sized enterprises follow, then the “statistical” recovery that started in mid 2009 will have some real legs."