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New Zealand businesses optimistic with low inflation, capacity pressures

Xinhua, April 14, 2015 Adjust font size:

Business leaders are estimating economic growth of just over 3 percent in the year to the end of March, according to an independent survey of business opinion out Tuesday.

Growth was expected to moderate in the March quarter, but the New Zealand Institute of Economic Research (NZIER) Quarterly Survey of Business Opinion indicated the economy was in good shape.

"Business confidence remains steady at 20 percent net optimists, after adjusting for the usual seasonal variations. While confidence is well below the lofty levels seen a year ago, firms are still fairly optimistic," NZIER senior economist Christina Leung said in a statement.

The services sector had fared particularly well, buoyed by increased house sales in an environment of low interest rates and strong mortgage lending competition amongst banks.

The manufacturing sector has also been surprisingly resilient in the face of a New Zealand dollar rising against its Australian counterpart.

Experienced domestic trading activity, which closely mirrored gross domestic product growth, had eased from 22 percent in the December 2014 quarter to 19 percent.

However, profitability expectations had picked up, with more businesses thinking about investing in buildings and plant and machinery.

Despite the solid level of activity, inflation pressures remained subdued, with few firms reporting cost pressures or plans to raise prices.

Capacity pressures picked up in the March quarter, with an increase in capacity utilization in the building sector, but a dip in the manufacturing sector.

The low inflation environment had driven a decline in interest rate expectations.

"A net 4 percent of financial services firms now expect interest rates to fall over the coming year, in contrast to a net 17 percent expecting an increase in interest rates in the previous quarter," said Leung.

An ASB Bank Economic Note said the survey results had no implications for the Reserve Band of New Zealand.

"We do not expect OCR (official cash rate) increases in the foreseeable future and given the ongoing weakness in underlying inflation pressures, we still see the near-term risks as skewed toward a rate cut," it said. Endi