New Zealand business confidence rises to two-year high in Q4

[WELLINGTON] New Zealand business confidence rose to the highest level in more than two years in the fourth quarter and inflation pressures picked up, a private think tank said on Tuesday.

Signals of an economy racing along reinforce the likelihood of the Reserve Bank of New Zealand (RBNZ) holding interest rates when it meets in February, after cutting three times last year to combat low wage growth and inflation.

A net 28 per cent of firms surveyed, the most since June 2014, expected general business conditions to improve compared with 26 per cent in the previous quarter, the New Zealand Institute of Economic Research's quarterly survey of business opinion (QSBO) showed.

"This indicates continued solid momentum in the New Zealand economy, which should provide a buffer against the downside risks from unexpected events both here and abroad," said Christina Leung, senior economist at NZIER.

Growing optimism was broad-based, led by the booming construction sector as well as a bounce back in global dairy prices giving hope to rural regions. Strong business confidence in Wellington showed the deadly earthquake that damaged buildings in the capital in November had not hit businesses'outlook hard.

A net 7 per cent of firms, the highest level in two years, reported raising prices after 4 per cent cut prices the previous quarter. This was in line the RBNZ's projections that inflation would pick up at the end of 2016.

"This suggests we're going to see a pick up in annual inflation across 2017," said Ms Leung, adding she expected it would settle around 2 per cent.

The country's central bank slashed interest rates last year to a record low 1.75 per cent to help stoke inflation, which, at just 0.2 per cent sits well below the bank's target band of one to three per cent.

REUTERS