Businesses look to demand boost ahead

A net 26% of firms are expecting improved economic conditions over the coming months.

The improvement in confidence was broad-based across most regions, with optimists outnumbering pessimists in dairy-intensive regions such as Taranaki and Southland, the NZIER says.

The recent increase in global dairy prices and subsequent upward revision by Fonterra to its dairy payout forecast have reduced the risks to the dairy sector and boosted confidence. Nonetheless, confidence remains strongest in tourism-intensive regions such as Auckland, Otago and the Bay of Plenty.

Firms are also expecting a strong lift in demand in their own business, with a net 32% expecting an improvement in own trading activity over the next quarter – the highest level since mid-2014.

The building sector was again the standout sector, with confidence in the sector boosted by a strong pipeline of residential and commercial construction work. Rapid population growth has boosted demand for housing and new office buildings, and firms expect a further ramp-up in building activity over the next few years.

Despite the high levels of activity, capacity utilisation and pricing indicators in the building sector eased.

Hiring over the past quarter eased, in contrast to the surge in hiring intentions for the next quarter. A net 27% of firms are looking to increase headcount in the next quarter – the highest level for 43 years.

Firms report increased difficulty in finding labour, and this may have limited the extent to which firms could increase headcount over the past quarter. The difficulty in finding labour is particularly acute for skilled labour, with shortages at levels not seen since December 2007.