KEY POINTS:
Business confidence has jumped to the highest level for two years in the National Bank's monthly business outlook survey.
Those who expect general business conditions to be worse in 12 months (29 per cent of respondents) continue to outnumber those who expect them to get better (15 per
cent).
But the net 14 per cent who are pessimistic compares with a net 29 per cent in the October survey.
Firms' expectations about their own activity, a more reliable indicator of economic prospects, rose to a net 24 per cent expecting better times this month from a net 18 per cent last month. It is the highest this indicator has been since early last year and is consistent with economic growth of around 2.5 per cent over the next 12 months, the bank's chief economist, Cameron Bagrie, said.
Sentiment had perked up for several reasons, including lower petrol prices, which put discretionary spending power back in people's pockets, an exceptionally low unemployment rate of 3.8 per cent, a resilient housing market and solid net migration gains.
And the construction sector must be licking its lips at the prospects for activity related to the 2011 Rugby World Cup, he said.
Export intentions eased slightly, with a net 23 per cent expecting to increase exports, compared with a net 28 per cent in October. Confidence improved in every sector but agriculture. Among construction sector firms, it was the highest for four years.
Profit expectations rebounded, with a net 4 per cent of firms expecting an improvement on that score, compared with a net 1 per cent expecting to go backwards a month ago.
Hiring intentions have also bounced back, with a net 6 per cent expecting to lift employee numbers, whereas last month a net 1 per cent expected to reduce them.
Investment intentions, on the other hand, were little changed, though still positive with a net 11 per cent expecting to increase investment, compared with 10 per cent last month.
The news was better on the inflation front too, with a net 23 per cent of firms expecting to raise their prices, down from 28 per cent last month and well down from the levels around 40 per cent seen mid-year. Inflation expectations also eased, to 3.3 per cent from 3.4 per cent last month.
Even though pricing intentions had eased for the past four months, they remained elevated, Bagrie said.
"The major uncertainty is how much of [the decline] is petrol induced and to what degree an inflationary undercurrent remains."
He said an essential element was missing from the picture of rebuilding economic momentum combined with easing inflation depicted by the survey: productivity.
Productivity performance was woeful, he said, with employment growth outstripping economic growth for more than a year.
The country was far from being out of the woods, with growth heavily concentrated in those sectors of the economy aligned with domestic spending instead of export earnings.
That mix would only make worse the "monstrous" current account deficit - 9.7 per cent of gross domestic product.
"And with each passing day we see the New Zealand dollar slowly tick up," he said.
