QSBO-Business confidence rebound suggests strong finish to 2015

The latest NZIER Quarterly Survey of Business Opinion shows business confidence rebounded in the final quarter of 2015. Following the sharp drop in confidence in the previous quarter which saw pessimists outnumber optimists, a net 13 percent of businesses now expect the New Zealand economy will strengthen over the coming months.

Demand also continued to pick up, with a net 18 percent of businesses reporting an increase in their own trading activity in the December 2015 quarter. Demand has strengthened across all sectors in the survey, and businesses expect a further improvement in their own trading activity over the next quarter. This suggests solid GDP growth over the first half of 2016.

Firms want more workers; but cautious about investing

Strengthening demand is supporting firms’ expansion plans. A net 17 percent of businesses increased headcount, with a net 14 percent intending to hire over the next quarter. Firms are reporting increased difficulty in finding skilled labour in the face of continued employment growth.

There is more caution when it comes to investing, particularly on buildings.

Capacity pressures pick up but inflation remains weak

With activity continuing to pick up, there are signs of renewed capacity pressures in the economy. Capacity utilisation ticked up in December 2015, and a greater proportion of businesses reported capacity as the key constraint on their business.

Despite rising capacity concerns, inflation pressures remain weak. Businesses are finding it slightly easier to put through price increases, but still not by enough to keep pace with cost increases. This is continuing to weigh on firm profitability.

Although inflation is subdued, we expect the Reserve Bank will keep the OCR on hold over 2016 in the face of solid economic growth.