Optimism increases despite Reserve Bank threats

13 December 2006

Business optimism increases despite Reserve Bank threats

Business confidence is continuing to rise despite threats by the Reserve Bank to increase interest rates early next year and a fall in the terms of trade.

For the fifth successive quarter, the level of business optimism has increased in regard to how Auckland businesses view both the economy’s overall performance and how they assess their own prospects in the period ahead.

A year ago, just 7% of Auckland businesses believed the general business situation would improve during the first six months of this year. When asked the same question earlier this week, 23% of the more than 800 Auckland Chamber of Commerce members who took part in the quarterly survey predicted the environment for doing business would improve during the first six months of 2007.

Similarly, in respect of how businesses see their own business prospects over the next six months, 53% predict they will improve compared with just 35% of this view last December.

“Widely reported claims by economic commentators last year predicting a fall in business optimism through 2006 have turned out to be 100% wrong,” said Auckland Chamber of Commerce chief executive Michael Barnett. “In fact, the exact opposite trend has occurred as business confidence has steadily improved throughout the year.”

In December last year nearly 60% of businesses were predicting the business environment to deteriorate in 2006. But in every survey since, the level of pessimism has dropped with just 18% now picking that the business environment will get worse next year.

Despite recent warnings from the Reserve Bank that interest rates may be forced to rise next year, 37% of respondents believe they will increase compared to 43% of this view at the last survey in September. Similarly, a recent fall in New Zealand’s terms of trade has been ignored by business in assessing their prospects in the period ahead.

Mr Barnett suggests that part of the explanation for the improved optimism could relate to a growing belief that the Government is serious in wanting to encourage business to improve productivity and address basic infrastructure issues such as transport and energy.

ENDS

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