Stronger markets lift confidence

Business confidence continued to improve in the National Bank's latest monthly survey.

The bank's chief economist, Cameron Bagrie, said it reflected improving global sentiment as shown in world equity markets, but was still at a level indicative of an economy contracting, though more slowly.

A net 6 per cent of firms expect general business conditions to improve over the coming 12 months, up from 2 per cent in May and up steeply from a net 41 per cent expecting worse times in February's survey.

They are also taking a brighter view of their own prospects, a net 8 per cent expecting their activity to increase, up from 4 per cent in May.

The two most optimistic sectors are construction and manufacturing. This is despite manufacturers recording their steepest decline for 23 years in March-quarter gross domestic product data released on Friday, while residential and non-residential building activity declined as well.

"There comes a point where people reckon things can't get any worse, they can only get better," Bagrie said.

Around the world business sentiment surveys had been tracking resurgent equity markets which were seen as a barometer of the economic outlook, he said.

But the rise in firms' expectations about their own activity had not yet flowed through to profit expectations or hiring and investment intentions, which remain little changed from May at historically weak levels.

"The labour market outlook remains particularly poor with a net 17 per cent expecting to hire fewer staff over the year ahead."

Economic recovery would not become self-sustaining until hiring and investment picked up, he said.

"Anything which indicates we are moving past the trough in the recession is encouraging but the question is what sort of recovery is ahead. This [survey] is pointing to something pretty tepid," Bagrie said.

"And the irony is that if it is reflected in too strong a currency it could choke the recovery off."

Despite the kiwi dollar's appreciation, export intentions picked up. A net 11 per cent expect an increase over the year ahead compared with a net 6 per cent in May.

That probably reflected an improvement in sentiment about the world economy, Bagrie said, but expectations remained low by historical standards.

The bank has introduced a new question into the survey, about whether respondents expect credit to be easier or harder to get over the coming year. Only the construction sector expected life to get easier on that front.