Glimpses of good news ease battered business confidence

By ELLEN READ

A lower New Zealand dollar and some upbeat economic news have given the country's businesses a much-needed shot in the arm.

National Bank chief economist John McDermott said the bank's monthly business outlook survey showed a small improvement in a generally glum outlook.

A net 36 per cent of firms surveyed expected general business conditions to deteriorate in the year ahead. (Last month, a net 42 per cent thought conditions would worsen.)

The news which helped sentiment was a mixture of improving commodity prices and job ad surveys.

"The news has been patchy but those rats and mice pieces of information, all seem to have been much more positive than forecasters were expecting," McDermott said.

The overall level was still quite negative, dominated by the pessimistic rural sector, he said.

A net 59.7 per cent of agriculture sector respondents expected the economy to worsen in the next year.

"But actually the downward trend in that sector seems to have halted. This month it was down but the previous couple it has been up slightly," McDermott said, explaining this had occurred amid a change in direction for the currency and higher commodity prices.

"So even that sector looks like it might be gaining a little bit of a spring in its step," he said.

If the rural sector has a slight spring in its step, the country's retailers are bouncing off the walls.

A net 17.5 per cent were downbeat about the general economy - a huge turnaround from last month's net 32.5 per cent of pessimists.

"That was a rebound from the massive shock for the lower North Island, in particular, following the floods," McDermott said. "They've got through it and are still around so they're feeling more upbeat."

The own-activity outlook also took a step forward with a net 20 per cent of firms expecting activity in their own businesses to improve in the coming 12 months. This was up from a net 17 per cent last month.

The improvement in business sentiment on average, masked some diverging trends across main sectors of the economy, National Bank said.

Confidence in the primary sector was steady - with a net 31 per cent of farmers expecting their own businesses to improve, the same as the March figure - while confidence in the secondary sector was falling - with a net 14 per cent of firms (mainly manufacturing and construction) expecting their own business activity to improve, down from a net 21 per cent last month.

In contrast, a net 21 per cent of firms in the tertiary sector (which covers retail and services) expected an improvement in their own businesses over the year ahead, a large gain on the net 13 per cent recorded last month.

The Reserve Bank, which makes a decision on interest rates tomorrow, uses the survey as the final piece of the economic jigsaw for its decision.