NZ business outlook improves in September on expected profit   30 Sep 2016

Friday 30 September 2016 01:30 PM

NZ business outlook improves in September on expected profit growth

By Sophie Boot

Sept. 30 (BusinessDesk) - New Zealand firms had a more positive outlook in September about both their own prospects and the wider economy, with employment intentions and profit expectations rising.

A net 27.9 percent of firms were optimistic about the general economic outlook over the coming year, up from a net 15.5 percent in August, according to the ANZ Business Outlook. A net 42.4 percent of companies see their own activity expanding, compared to a net 33.7 percent a month earlier.

Increased profits were expected by a net 34.4 percent of the 413 respondents compared to a net 22.2 percent in August, while a net 25.3 percent are expecting to hire more staff in the year ahead, up from 19.2 percent a month earlier.

"The economy remains odds-on to put in another good year," ANZ Bank New Zealand chief economist Cameron Bagrie said in his report. "Our confidence composite indicator – which combines both business and consumer sentiment – is pointing to GDP growth accelerating from its current pace of 3.5 percent. The New Zealand economy remains a furlong out in front of most developed-nation peers."

The country's economic performance has been underpinned by rampant building activity, record tourism, and strong inbound migration which has stoked consumer spending, while a recovery in global milk prices has eased concerns about the health of rural New Zealand.

Despite the confidence boost, pricing intentions barely shifted at a net 16.8 percent from a net 14.9 percent, which Bagrie said was low. Inflation expectations for the coming year were steady at 1.44 percent.

The Reserve Bank is watching inflation expectations closely as he grapples with a strong currency keeping imported goods and services cheap, making it difficult for him to meet his price stability target. While he's able to look through the effects of the kiwi and cheap oil prices, he's concerned that those will feed into long-term inflaiton expectations leading to stagnant prices.

Across the five sub-sectors, service sector firms remained most optimistic, while agriculture moved to second place from least positive in August. Confidence improved across all of the sub-sectors, ANZ's Bagrie said.

Construction expectations were strong, with a net 41 percent of respondents expecting more residential construction in the year ahead, up from a net 36.4 percent in August, while a net 27.3 percent were optimistic about the commercial construction sector's outlook, compared to 23.8 percent a month earlier.

A net 13 percent of respondents see an expansion in livestock investment, compared to a net 11.6 percent expecting a contraction a month earlier.

Businesses thought it was easier to get credit in September, with a net 8.7 percent finding it hard, from a net 14.3 percent in August.

"We’re watching this indicator closely as a) loan-to-value restrictions tighten; and b) credit growth outstrips deposit growth – an unsustainable mix," Bagrie said. "The former needs to slow and the latter lift to restore some balance. There will be consequences."

Interest rates were expected to fall by a net 28.9 percent of respondents, from net 38.4 percent in August.

(BusinessDesk)

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