Recovery spreading beyond Auckland and Christchurch - expert

The lift in activity and optimism was flowing through to new hiring, Shamubeel Eaqub said. Photo / Brett Phibbs

If the economy ended 2012 with a reasonable head of steam up, it maintained it over the first three months of this year, the New Zealand Institute of Economic Research's quarterly survey of business opinion indicates.

A net 11 per cent of firms reported an increase in their trading activity over the past three months, in line with the December survey and the long-run average for that indicator, and well above the barely positive readings from most of last year.

Overall the survey indicated the economy had maintained the momentum set in the December quarter and was consistent with the economy expanding at an annual rate of 3 per cent, as it recorded in calendar 2012, NZIER principal economist Shamubeel Eaqub said.

"The recovery is broadening from Canterbury and Auckland to other regions. This is the most broad-based strength seen in the survey since the recession began in 2008."

The lift in activity and optimism was flowing through to new hiring, Eaqub said, and to investment intentions both for buildings and for plant and machinery.

"Canterbury has been driving much of this, but there is emerging evidence of a broadening lift in hiring and investment in other regions too."

Westpac economist Michael Gordon said that because the survey did not directly cover the agricultural sector it might understate the impact of the drought and it also excluded the public sector, where spending caps were likely to be a sizeable drag on the pace of growth over the next couple of years.

But Eaqub said the survey included suppliers to the farm sector and firms which processed its output. Historically, droughts had not materially undermined the survey's reliability.

A net 4 per cent of firms reported an increase in staff numbers, from 3 per cent recording falls in the previous quarter.

Eaqub said that was consistent with 2 per cent annual growth in employment though inconsistent, he acknowledged, with other labour market indicators. Hiring intentions are also positive.

ANZ economist Mark Smith said: "While these results are encouraging, a sustained recovery in employment remains the missing link to a concerted economic expansion taking place. We still need to see expectations converted into reality."

The building sector returned the most positive numbers for output, employment and new orders, and a flattening off in the growth in its costs.

The survey presented a mixed picture of manufacturing. A net 5 per cent of firms reported an increase in staff numbers and a net 11 per cent reported higher exports, up from the last two quarters. But their selling prices are under pressure.