Business confidence nears 20-year high

Aucklanders' attention has turned towards the waterfront, with the Cup score at an encouraging 7-1. Photo / Richard Robinson

New Zealand business confidence rose to its highest level in almost 20 years in February, indicating strong economic growth this year.

A net 70.8 percent of firms are optimistic about general business conditions this month, up from 64.1 percent in December and the highest level since March 1994, according to the ANZ Business Outlook survey. The New Zealand dollar jumped as high as 83.95 US cents from 83.61 cents immediately before the 1pm release, and was recently trading at 83.93 cents.

Firms seeing a pickup in their own business activity rose to 58.5 percent from 53.5 percent in December, the highest reading since June 1994. Expected profitability of 44.6 percent is up from 39.7 percent in December and at the highest level since April 1994.

A net 32.4 percent expect to hire more staff, up from 24.7 percent in December and the highest level December 1992, while investment intentions at 35.2 percent is up from a previous reading of 21.8 percent and the strongest since March 1994.

The strong survey results are despite headwinds from an elevated currency and the expectations from a net 90 percent of respondents that interest rates will rise over the coming year. While the ANZ's composite indicator of business and consumer confidence is signalling the potential for 6 percent annual growth by mid-2014, capacity constraints and a weak national balance sheet rule out that growth trajectory, and suggest growth of about two thirds that pace, at 4 percent, is more likely, ANZ said.

"That'll be good enough to propel New Zealand to the Top of the Pops - topping the OECD growth stakes - so-called 'Rock Star' status," ANZ Bank New Zealand chief economist Cameron Bagrie said. "But we need many more years of solid gold economic growth - underpinned by ongoing productivity improvements - to secure our place in the rock and roll Hall of Fame. We're simply up at a time a host of others are in rehab."

Interest rates are set to move higher, given the survey results show a net 32.9 percent of firms expect to raise prices, a higher trend for inflation expectations of 2.6 percent and with pricing intentions in the construction sector at the highest since 1992, ANZ said.

While not hitting such highs, other measures in the survey are robust, ANZ said, citing investment in livestock, residential and commercial investment intentions and export intentions.