Firms widely expect interest rates to rise over the coming year, and signs that spare capacity is shrinking would support that view. Easing cost and pricing gauges, however, give the Reserve Bank of New Zealand some room on the inflation side. Oil is the main swing factor: the renewed US-Iran conflict has lifted fuel prices again, and further gains would test NZIER's view that the energy shock is not yet spreading into broader inflation. For the New Zealand dollar, the survey offers modest support through firmer growth and rate expectations, though the gap between optimism and actual activity tempers the signal.

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New Zealand firms have rarely felt this good about an economy they are not yet seeing in their own order books, with oil the wildcard that could close the gap the wrong way.

Summary:

• A net 40% of firms expect better general economic conditions, up from a net 14% in the June quarter.
• Own domestic trading was flat to slightly weaker, with a net 1% reporting a decline.
• Confidence rose in every sector, led by retail at a net 57% and building at a net 46%.
• Investment intentions turned higher, and many firms plan to hire despite a net 5% cutting staff in the quarter.
• Firms reporting higher costs fell to a net 47% from a net 54%, and fewer firms raised prices.
• NZIER says higher oil prices from the US-Iran conflict remain a headwind, and firms widely expect interest rates to rise.

New Zealand business confidence climbed sharply in the September quarter, according to the latest NZIER Quarterly Survey of Business Opinion, although firms' own trading activity has yet to catch up with their brighter view of the economy.

A net 40% of firms expect general economic conditions to improve over the coming months on a seasonally adjusted basis, up from a net 14% in the June quarter. Actual activity was flat to slightly weaker, with a net 1% of firms reporting a decline in their own domestic trading over the quarter.

The rise in optimism came despite renewed conflict between the United States and Iran, which has pushed global oil prices higher again. NZIER said the hit to sentiment from Middle East developments appears muted for now, but uncertainty over geopolitics and global oil supply remains a headwind for New Zealand's recovery over the coming year.

Confidence improved across every sector surveyed. Retailers were the most upbeat, with a net 57% expecting better conditions, even though new orders and sales fell during the quarter and profitability deteriorated as weak demand stopped them passing on higher costs. The building sector swung from pessimism earlier in the year to a net 46% expecting improvement, backed by higher new orders and output, though architects' workloads point to a flat housing pipeline and shrinking commercial and government work. Manufacturers reported stronger domestic and export demand, while the services sector was positive on the outlook despite lower volumes.

Investment intentions have turned higher, with firms planning to spend on buildings, plant and machinery after caution earlier in the year. A net 5% of firms cut staff in the quarter, but a sizeable share plan to hire in the next three months. Lack of demand remained the main constraint, yet firms found it harder to recruit skilled workers, which NZIER said suggests spare capacity is starting to erode.

Cost and pricing gauges eased from elevated levels. The share of firms reporting higher costs fell to a net 47% from a net 54%, cost expectations declined and fewer firms raised prices, which NZIER said reduces the risk of higher fuel prices feeding into broader inflation. Firms widely expect interest rates to rise over the coming year, and NZIER expects higher mortgage repayments to restrain household discretionary spending as loans reprice.

This article was written by Eamonn Sheridan at investinglive.com.

Source: Investing Live - News