Building sector leading recovery

Business sentiment continued to improve in the last quarter of 2020 and more firms are feeling positive about the year ahead, according to a new survey by the NZIER.

The construction sector is leading the recovery but other sectors, like retail, also look set to hire more staff in the months ahead.

The Quarterly Survey of Business Opinion found that a net 16 per cent of businesses still expect a deterioration in general economic conditions over the coming months (on a seasonally adjusted basis).

But that was lower than the 38 per cent in the previous quarter, and well below the 68 per cent figure in March 2020.

When it came to firms’ own trading activity, a net 1 per cent reported reduced demand on a seasonally adjusted basis.

This measure suggested a rebound in annual GDP growth to around 2 per cent at the end of 2020 from the lockdown lows in mid-2020, said NZIER principal economist Christina Leung. “So we are seeing a sharp improvement and overall there are signs of momentum building in the economy.”

The building sector remained the most optimistic of the sectors surveyed, as strong construction demand supported a lift in confidence.

“Building sector firms are hiring to keep up with demand. The rebound in . . . activity is driving capacity utilisation in the sector to record highs,”

Leung said. The labour shortage was increasingly acute, she said. There was now 99 per cent capacity utilisation in the sector, stronger than anticipated. It reflected a view that many firms were now unable to do more business without an increase in costs.

Businesses were generally still cautious about general economic conditions ahead.

While many business were still looking to cull headcount there had been a lift in expectations around hiring new staff in the next quarter — particularly in the retail sector.

A net 15 per cent of firms were planning to grow headcount in the next quarter, while a net 10 per cent were looking to invest in plant and machinery.