Business 'in better spirits' over outlook

Businesses are in better spirits than they have been all year, the National Bank's monthly survey shows.

However, the hallelujah chorus is still not quite loud enough to drown out the funeral march.

As has been the case for nearly three years, despite strong economic growth there are more pessimists than optimists about conditions over the next 12 months.

But the margin has shrunk to from last month's 17 per cent to eight.

Firms are also feeling more upbeat about their own prospects, with 27 per cent expecting a lift in activity.

Bank chief economist John McDermott said confidence had improved significantly in the retail, construction, manufacturing and services sectors.

But confidence had fallen in the agricultural sector as the rising dollar weighed on farmers' minds.

Overall, investment intentions are stronger, as are hiring intentions and profit expectations.

A quarter of exporters expect stronger exports over the coming year, up marginally on November.

But McDermott said with the dollar now sitting well above most estimates of its long-run average value, and currency hedging at favourable rates running out, exports were likely to come under pressure.

Inflation indicators have also improved.

Twenty-two per cent of firms expect to raise their prices in the next three months, down sharply from 28 per cent last month.

"Pricing intentions are a good leading indicator of inflation and, right now, they are consistent with our own forecast that we probably won't breach the top of the Reserve Bank's one to three per cent target band. With the dollar moving up and the cost of imports coming down that will save the Reserve Bank," McDermott said.

But even though the exchange rate is making imports of capital equipment cheaper, the survey found manufacturers are easing back on investment plans.

"If you are worried about profitability and the sales outlook, maybe you tread more cautiously on those [investment] commitments," he said.

Meanwhile, the monthly ANZ-Business New Zealand performance of manufacturing index recorded a strong jump in November to its most expansionary level since the survey began in August 2002.

The survey said measures of new orders, production, stocks, deliveries and employment all rose.

As in 2002 and 2003, this November reflected a strong seasonal pre-Christmas bounce. Manufacturers comments indicate the high dollar is still hampering activity.