Businesses have made a positive start to the year but rising costs are likely to take the wind out of their sails in the next few months.
Firms' cost expectations went up 14 points to a net 71 percent in ANZ bank's preliminary survey of business confidence. Photo: RNZ / Rebekah Parsons-King
The ANZ Bank's preliminary survey of business confidence shows sentiment rose 3 points from its last reading in December to net 12 percent.
The more closely followed measure of firms feel about their future inched higher, with a net 22 percent of firms expecting activity to get better over the next 12 months.
"It's been six weeks since we last got a read on how businesses were feeling and it seems they have kicked off this year in much the same frame of mind as they ended 2020.
"So, pretty positive about the future, they see stronger activity, they intend to invest and employ [more]."
Despite the lift in confidence and future activity, firms' cost expectations rose at a much higher clip, up 14 points to a net 71 percent.
Zollner said firms were concerned about the rising cost of freight and staff, due to the skills shortage.
The consequence was that about half of firms planned to rise prices to cover their costs and were less confident they would as profitable, Zollner said.
"We are expecting a few bumps ahead and in the first three months of the year that's when we're going to feel the loss of the tourism income the most, so it's not going to be a matter of onwards and upwards. There are certainty still some changes but the New Zealand economy is in much better shape than anyone dared hope [when Covid-19 first emerged]."
She said given the strength of the economy and the sharp fall in insolvencies, the case for continued fiscal support, by way of the wage subsidy and government backed loans, was weakening.
"A lift in insolvencies shouldn't be seen necessarily as deeply worrying, just sort of a return to normal as it were.
"At the end of the day, we do have to allow the economy to adapt and change shape."