NZ business optimism falters - survey

New Zealand business optimism has faded over the past two months as deteriorating global sentiment dented the outlook for the local economy and sapped firms' intentions to take on new staff and make investments.

Headline confidence declined to a net 40 per cent of companies surveyed expecting business conditions to improve in the coming year, down from a net 48 per cent last month, according to the National Bank Business Outlook.

Fewer firms expect to lift their investment, with a net 10 per cent of respondents looking to inject more capital into their businesses, down from a net 14 per cent last month, while a net 13 per cent of companies will look to hire new staff this year, compared to a net 16 per cent in May.

"Firms seem to be taking a cautionary view in terms of how the flow-on from the global scene could pan out," said Khoon Goh, senior markets economist, in his report.

"A sustained pick-up in investment remains the missing ingredient for a broadening of the recovery, and critical component of expanding productive capacity."

The survey period covered the government's cut to the company tax rate and Fonterra Cooperative Group's announcement for an increased pay-out to farmers next season. It also encompassed worldwide jitters over Europe's sovereign debt crisis, which sapped investors' appetite for so-called risky assets and pushed stock markets lower.

Still, Goh said export intentions was encouraging, with regional difficulties in Europe having little impact, as a net 30 per cent of respondents predict their export receipts will gain over the next year, compared to a net 33 per cent in May.

Reserve Bank Governor Alan Bollard was heartened by the pick-up in exports, saying strong demand in Asia, coupled with resilient prices for raw materials, had supported the country's economic recovery. He hiked the official cash rate a quarter-point earlier this month to 2.75%, the first increase in three years, and a net 78 per cent of firms expect interest rates to climb in the next 12 months.

New Zealand's economy grew 0.6 per cent in the first three months this year, while the current account deficit shrank to a 21-year low 2.4 per cent of gross domestic product, according to government data.

Businesses pared back their expectations for their own activity, which fell 6.7 percentage points to a net 38.5 per cent, while companies expecting bigger profits fell to a net 19 per cent from 24 per cent in May.

Companies expect inflation to rise to 3.1 per cent over the next year, compared to 2.69 per cent last month, after the government announced it would hike the goods and services tax to 15 per cent. A net 39 oer cent of firms intend to lift their prices this year, compared to a net 28 per cent in May.

Goh said the GST increase is "clearly behind these movements and should not unduly alarm the Reserve Bank," though it will want to ensure pricing intentions don't spill over into broader wage negotiations and price setting.

The New Zealand Institute of Economic Research's Quarterly Survey of Business Opinion, which is closely followed by the central bank, comes out next week and has a strong correlation with the National Bank survey.