Confidence revives slightly but still in negative territory

Business confidence has risen but is still negative by historical standards, says the National Bank's latest monthly survey.

Pessimists about the general business environment in the year ahead outnumber optimists eight to one. The net 49 per cent pessimistic is an improvement from a net 57 per cent last month but still a negative reading by historical standards.

Companies are gloomier about their own prospects than they were last month. A net 7 per cent expect their own activity to increase, down from a net 9 per cent in May.

It is the fourth successive monthly decline and below the long-run average of 30 per cent.

"This level of confidence is indicative of about 1 per cent economic growth in the year ahead," said National Bank economist Cameron Bagrie.

At that rate (about half of what economists are forecasting), the economy would be at risk of stalling altogether.

Deteriorating confidence was reflected in lower expectations for exports and weaker intentions to hire, invest and build.

Bagrie said there were good reasons for businesses to be wary. The kiwi dollar was high and the protection of forward cover at lower rates was wearing off.

Oil prices were high and the effects of seven interest rate rises by the Reserve Bank over the past 18 months were filtering through.

Bagrie said growth among New Zealand's trading partners was also suffering "palpitations", with Australian growth slowing, cracks appearing in the US and Europe's "awful" performance.

The Budget was a fizzer and firms were wary of wage demands and the costs of complying with the Kyoto Protocol.

On the positive side, commodity prices remained high, extra Government spending was working its way through the economy, the sharemarket had surged in the past month and retail and housing statistics were still strong.

The survey had better news on inflation. Expectations have receded to 2.9 per cent from April's high-tide mark of 3.1 per cent. Fewer firms expect to raise prices - a net 22 per cent compared with 27 per cent last month.

Bagrie said there was clearly no need for any further tightening by the Reserve Bank.