Economic activity in the December quarter surged to the best level since mid-2007 according to the New Zealand Institute of Economic Research’s Quarterly Survey of Business Opinion.
Businesses are more optimistic (+19% from -1%, seasonally adjusted). The trading activity indicator for the December quarter also surged to the best level since mid-2007 (+8% from -4%, seasonally adjusted). This suggests annual GDP growth for 2012 will be above 2%.
“There are encouraging signs of a strengthening economic recovery. The latest bounce is concentrated in Auckland, and Canterbury to a lesser extent,” said Shamubeel Eaqub, Principal Economist at NZIER.
Subdued labour market
The latest pickup is not yet flowing through to the labour market. New hiring remains subdued and labour is getting a little easier to find outside of Canterbury. This is surprising as a recovery in activity tends to be accompanied by more jobs and increasing competition for labour that raises wages. This part of the recovery remains absent. It may be explained by reduced working hours during the recession, which are now returning to more normal levels, rather than through increased hiring.
Investment intentions, while positive, are also low compared to what we normally see in a recovery phase.
Capacity pressures are intense in Canterbury, but there is little pressure in the rest of the country. Firms do not intend to raise prices much. Consumer price inflation will remain low. Margins remain under pressure, but profits are beginning to lift on the back of better sales volumes.
RBNZ to hold interest rates steady
The RBNZ will keep interest rates on hold for some time. The QSBO shows the beginnings of a recovery, but still very low inflation.
One quarter does not a full recovery make but it is a long awaited sign of improvement.
The Christchurch rebuild is having a positive impact further afield than Canterbury.
Building tradespeople I’ve spoken to in Oamaru in the last week say they were busy at the end of the year and busier still this year.