Firms expect growth to slow down next year

By BRIAN FALLOW

The National Bank's latest monthly survey of business confidence points to neither boom nor bust.

Firms' expectations of their own activity eased slightly from September to levels consistent with growth of about 2.5 per cent next year, says the bank's chief economist, Dr John McDermott.

Their view of the outlook for the economy generally was unchanged from last month, but still languishes in negative territory, with a net 21 per cent expecting it to deteriorate.

"These numbers suggest neither a boom nor a bust for the economy," McDermott says.

The agriculture sector is the most optimistic - about its own outlook at least - with a net 35 per cent expecting a pick-up in activity.

Commodity prices are a historical high and the exchange rate is expected to fall over next year, say McDermott.

But in the meantime, the high exchange rate, especially against the Australian dollar, has hit confidence among manufacturers.

Only a net 16 per cent of manufacturers expect their own activity to rise in the year ahead, the lowest level since June. They report more spare capacity than they have for more than a year.

By contrast, the services sector is running at full tilt, McDermott says.

Their profit expectations and hiring intentions are the highest of any sector. Their investment intentions are high - and so are their plans to raise prices.

The construction sector is suffering indigestion.

"They do not believe the future will be as rosy as [they did] a year ago. Costs are rising and intentions to increase prices continue."