Sunlight pierces business gloom

Just when business confidence appeared to be in free fall, the bungy rope has kicked in.

The National Bank's latest monthly survey records a rebound not only in how firms feel about the general business climate but also in what they are saying about their own prospects and their plans to hire and invest.

The bank puts this down to the fact the New Zealand dollar has dropped over the past month, easing pressure on exporters and that there is increased confidence the Reserve Bank's next move on interest rates will be a cut. In addition the Lions tour has given some sectors, such as accommodation, restaurants and retailing, a fillip.

"It has created a bit of a feel-good factor," said National Bank economist Cameron Bagrie.

Businesses may also be breathing a little more easily on the wages front. Mr Bagrie said companies had been concerned that wage rises of 5 per cent or more could become the norm. "But most seem to be settling in the 3 per cent to low 4 per cent range."

There may also be some impact from the political climate.

"Maybe people now think that tax cuts are a greater probability and that might firm up demand for the economy or for their business going forward."

But technically if it was a trade-off between public and private spending, it should not make much difference, he said.

Although business sentiment has improved, it remains at a low ebb.

Pessimists outnumber optimists five to one, with a net 43 per cent of respondents expecting general business conditions to get worse over the next 12 months. That is an improvement from a net 49 per cent pessimistic last month.

Apart from the past two months, business confidence has been this weak only twice in the past eight years.

However, Mr Bagrie said it was encouraging that firms were more optimistic about their own prospects.

The proportion of firms expecting their own activity to increase over the year ahead is at levels that in the past have pointed to economic growth of around 1.5 per cent - a "soft landing".

The economy looked subdued but not at death's door, Mr Bagrie said.