Optimists have edge in National Bank survey

National Bank chief economist Cameron Bagrie

For the first time since last September optimists outnumber pessimists in the National Bank's monthly survey of business sentiment - but only just.

A net 2 per cent of respondents expect general business conditions to improve over the next 12 months, where last month a net 15 per cent expected them to get worse. And a net 4 per cent expect their own activity to pick up, where by a similar margin last month they expected to go backwards. That is still weak by historical standards; the long-run average is a net 25 per cent positive.

The bank's chief economist, Cameron Bagrie, put a similar improvement in sentiment last month down to a "bungy cord" rebound.

"After such an extended period of decline it is only natural to expect a base to be forming ... or the pace of contraction to moderate. The same applies this month," he said.

The economy was still contracting, it was just that the rate at which it was had slowed, Bagrie said. While firms' expectations for profits, investment and employment all ticked up from last month's levels they remain decidedly negative and below levels during the Asian crisis.

A net 16 per cent of firms expect to have fewer staff. Hiring expectations have been negative since February last year.

Export intentions have deteriorated. Weak global demand and a rising currency - apart from the Australian cross rate - was not a pleasant mix, Bagrie said.

Inflation expectations continue to decline, as does the proportion of firms expecting to raise their own prices, reflecting limited pricing power.

Bagrie expects the economy to regain forward momentum in the second half of this year. But with unemployment continuing to climb it will not feel much like a recovery, just as early last year did not feel much like a recession. "Even on the assumption that we return to solid growth in 2010 it will not be until 2011 that the economy returns to late 2007 levels."

The hope was that improvements, in confidence could become self-fulfilling, he said.

"Once confidence improves a spiral of success can quickly take hold as improving perception encourages spending, profits, investment and jobs."

It all started by getting back that feel-good factor, he said.

"At current levels of confidence, particularly in relation to jobs, investment and profits we have a way to go."

But the latest reading was a step in the right direction.