Business confidence has rebounded in the National Bank's monthly survey as the dollar continued its rapid descent from the altitudes it occupied late last year.
Pessimists still outnumber optimists by more than seven to one over the general business outlook for the next 12 months. But the figures for pessimists fell to 51 per cent from 62 per cent last month.
Firms' expectations of their own activity - a more reliable indicator of the short-term outlook for the economy - is back in positive territory, though only just, with a net 5 per cent expecting an improvement compared with a net 4 per cent expecting to go backwards last month.
That reflects better expectations for exports and profitability and is consistent with a lift in investment and hiring intentions.
Although the direction of these indicators was upwards, the levels remained low and pointed to a period of tepid economic growth but not a recession, said the bank's acting chief economist, Cameron Bagrie.
He attributes the bounce in confidence to a "massive shift down" in the exchange rate and an easing in longer-term interest rates. The kiwi dollar has fallen 9.3 per cent over the past month on a trade-weighted basis.
"The two key shock absorbers when things looked a bit dark have kicked in," Bagrie said.
"I think this time around the lower currency will give an impetus to growth far more quickly than in the past. The export sector did not have an awful lot of [forward foreign exchange] cover in place so they will benefit from the lower dollar more quickly than they could in 1999."
In addition, stronger corporate balance sheets and cashflows would allow businesses to open their cheque books again, though it would be next year before exporters' incomes improved.
Overall, Bagrie expects subdued growth over the next couple of years.
In Australia, he notes, retail spending growth has been sluggish and the housing market flat, despite good income growth and an export sector going strong, as households rebuild their precautionary savings buffer.
"So even with relatively low interest rates, high commodity prices and the Australian dollar going down, the consumer across the Tasman is still in a frame of mind to consolidate and not set the world on fire," he said.
"That is the stage in the cycle where New Zealand is heading."
The lift in business confidence was widespread across retailers, manufacturers, builders and the agricultural and services sectors.
The Reserve Bank would take comfort in a small nudge lower in inflation expectations, Bagrie said, but the proportion of firms expecting to raise their own prices went up, implying that inflation will not head lower until the second half of the year.
Confidence rebounds as kiwi falls fast
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