Confidence keeps on climbing

Business confidence continued to improve in September with a net 49 per cent of respondents to the National Bank's survey expecting better times over the coming year - a 10-year high.

It is up from a net 34 per cent in the August survey, and predates Fonterra's announcement of a higher forecast payout.

But the bank's chief economist, Cameron Bagrie, cautions that it has to be seen in the context of tough times over the past couple of years.

"We have been in a deep and prolonged recession. So when people are asked the simple question 'Do you expect things to get better or worse?' it's not surprising most say 'Better'."

Firms are also more upbeat about their own prospects, with a net 32 per cent expecting their activity to increase, up 6 points from August and historically a high reading.

Employment intentions continued to improve from the very low levels reached early in the year, but only a net 2 per cent expect to have more people on the payroll in a year's time.

Investment intentions are also only just in positive territory.

"Firms are picking slightly better demand, but they are still pretty cautious about hiring and investing. And those are critical if the recovery is to have legs," Bagrie said.

Overall the survey responses are consistent with the economy growing about 2.5 per cent by the middle of next year, he said. That would barely claw back its fall over the past year.

History does not give a a clear steer as to whether this recovery in sentiment is likely to be the harbinger of a sustained recovery.

The National Bank survey has surged this far this fast on three previous occasions. The first, after the sharemarket crash of 1987, did not herald a sustained upturn: the early 1990s were unpleasant.

The second surge in business sentiment in the early to mid-1990s did foreshadow a durable expansion.

The third, after the Asian crisis, was followed by a bit of both, domestic recession but an export boom as a weaker dollar delivered sky-high commodity prices.

BRIGHTER OUTLOOK
* A net 49 per cent of survey respondents expect an improvement in business conditions in the year ahead.
* 32 per cent expect their activity to increase.
* 2 per cent expect to increase staff in the year ahead.