A four-month improvement in New Zealand business confidence ended in August as more firms said they planned to increase prices and expected higher interest rates, according to a survey issued on Tuesday.
The National Bank of NZ Business Outlook for August showed a net 15 percent of firms expected general business conditions to worsen, against the 13 percent pessimism recorded in July but in line with economists' expectations.
Headline business confidence has been mired in negative territory for 27 months despite the economy having one of the highest growth rates in the developed world, and recent data indicating a 'soft landing' over the next year or so.
The survey's 'own activity' indicator, regarded as a better guide to underlying economic performance, eased to a net 28 percent expecting better conditions for their own firms from 30 percent.
"Nevertheless, this is still a relatively upbeat assessment of our economic prospects, suggesting that our economy will grow around three percent in 2005," said National Bank Chief Economist John McDermott.
New Zealand's strong economy, which saw gross domestic product growth of 5.0 percent in the year ended March, has resulted in labour shortages which firms view as the biggest single factor limiting their ability to increase production.
With resource pressures impacting on firms' costs, pricing intentions in the survey rose to a net 32 percent - the highest level since December 2000.
"The fact that it's heading upwards will heighten the concerns of the Reserve Bank and they won't be happy until they start seeing those expectations stabilise or decline," McDermott said.
New Zealand's central bank is widely expected to raise the official cash rate by a quarter percentage point to 6.25 percent at its next opportunity on September 9. It has raised its benchmark rate four times for a total of one percentage point so far this year.
Survey respondents backed that outlook, with a net 81 percent forecasting higher rates. Inflation expectations were higher at 2.87 percent from 2.73 percent, edging closer to the top of the central bank's 1-3 percent medium-term target band.
The slight pullback in firms' optimism about their own activity was accompanied by an easing in profit expectations, as well as employment and investment intentions.
Sentiment in the agricultural sector deteriorated to a net 33 percent pessimism, possibly subdued by bad weather and the kiwi dollar's climb to a five-month high against the greenback.
Retailers were also more pessimistic, however the volatile construction sector brightened to a net 5 percent from negative 21 percent.
"I think what was coming through was a reflection that some of the public sector investment may be coming through on the books," said McDermott.
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