Business confidence escapes traditional autumn blues

By BRIAN FALLOW

As a rule, when the leaves begin to fall so does business confidence, but the National Bank's survey found little evidence of the normal autumn blues this month.

The bank's chief economist, Dr John McDermott, said that since 1994 confidence tended to fall significantly heading into winter, but as yet not this year.

Confidence in the general business situation had "nudged down" from a net 20 per cent positive last month to a net 14 per cent positive.

That level and the net 39 per cent positive about their own activity outlook were consistent with an economy growing around 3 per cent, and nothing disturbing on the horizon, McDermott said.

Hiring and investment intentions, up slightly and unchanged respectively, were also consistent with an economy which was growing steadily but not on fire.

The proportion of firms expecting to raise their prices over the next three months eased back, to a net 23 per cent from 25 per cent last month. "With a rising currency [making imports cheaper] firms can grab back margin without putting up their prices," McDermott said.

Inflation expectations increased to 2.8 from 2.7 per cent, but the increase was probably not significant. "The main thing is expectations are still within the target band [0 to 3 per cent]."

The global trading environment had become friendlier over the past few months, with growth forecasts for New Zealand's trading partners being revised upward.

At the same time the indications are that domestic economic activity got off to a flying start this year.

Retail sales increased 0.5 per cent in January and 1.8 per cent in February. The housing market has also picked up but was not showing the excesses of previous cycles, McDermott said. "It is reasonable to have this level of optimism."

* New Zealand exported $451 million more than it imported last month, the best monthly trade figure since last May.

Though a final tally and breakdown of exports will not be available until next week, Statistics New Zealand estimates that exports last month were $3.02 billion or 3.1 per cent more than in March last year.

The increase in exports was in spite of the fact that the world price of New Zealand's export commodities had dropped 8.4 per cent over the past year and the New Zealand dollar had risen 4.7 per cent.

"That suggests that volumes went through the roof," said Bank of New Zealand economist Stephen Toplis.

He suspects the surge in exports now is because the normal flow of agricultural exports was impeded late last year and early this year by bad weather affecting processing, and a build-up of stocks.

"It doesn't alter the general view that exporters will come under pressure from declining commodity prices and a strengthening New Zealand dollar as the year wears on."

On the other side of the ledger, imports at $2.57 billion were 8 per cent lower than a year ago. Nearly half of the fall, $100 million, was in imports of crude oil and petrol, which Statistics NZ had to estimate.