Business sentiment healthy to stellar

Bagrie pointed to a healthy lift in sentiment in the agriculture sector, despite continuing falls in export dairy prices.

Business sentiment is somewhere between healthy and stellar, says ANZ chief economist Cameron Bagrie.

The bank's monthly Business Outlook survey found a net 42 per cent of firms expect their own activity to rise over the next 12 months, up four points from October.

On the general business situation a net 32 per cent expect improvement, up five points from last month and 18 points from the pre-election trough in September.

Profit expectations and investment intentions both rose, by seven and three points respectively, while hiring intentions lifted marginally.

Bagrie said firms' own activity and profit expectations, and their employment and investment intentions, had oscillated within a very narrow range for six months now.

That was pretty remarkable considering a background which included movement in interest rates, swings in the exchange rate, lurching commodity prices, a general election and other factors which could throw sentiment around, he said.

"Such stability within the survey tells us that firms are simply getting on with it."

Bagrie pointed to a healthy lift in sentiment in the agriculture sector, despite continuing falls in export dairy prices and real prospects of a payout below $5 a kilogram of milk solids this season.

"It didn't spill over into investment and employment, though, a sign that the cheque book is firmly shut."

He puts the improvement in agricultural sentiment down to good growing conditions, strength in commodity prices other than dairy, and a belief that a low farm-gate milk price will be a one-year event (though ANZ economists see increasing risks to next year's payout as well).

The survey's inflation indicators also improved. A net 20 per cent of firms expect to raise their prices over the next three months, down from a net 24 per cent last month, and inflation expectations have fallen to 2.1 per cent, the lowest level since 1999, from 2.5 per cent in October.

Bank of New Zealand economist Craig Ebert said that while the move down in the general inflation expectation was relatively marked, it would have been influenced by the weak September quarter CPI result, which lowered the annual rate to 1 per cent, realising that this survey question relates to year-ahead inflation.

ASB economist Jane Turner noted a surge in capacity constraints in the construction industry in the past two months, from a net 20 per cent reporting capacity constraints to net 62 per cent.