New Zealand businesses were more optimistic about the state of the economy and their own activity in the September quarter, even as their profits were squeezed by rising costs and an inability to hike prices.
A seasonally adjusted net 26 percent of firms surveyed in the New Zealand Institute of Economic Research's quarterly survey of business opinion expect general business to improve, up from 19 percent in June.
Of those surveyed 26 percent experienced stronger trading activity in the past three months and 32 percent see more expansion in the coming quarter, up from 22 percent on both measures in June.
That upbeat outlook was in spite of a 1 percent experiencing declining profits in the previous quarter.
Still, firms remain optimistic with a 20 percent predicting higher profits in the coming period, up from 16 percent in June.
"Although there was a further lift in confidence in the services sector and firms continue to report high levels of demand, profitability deteriorated over the past quarter," NZIER said in the QSBO report. "This reflected firms' increased difficulty in passing on rising costs, particularly in financial services."
New Zealand's economic activity has been underpinned by a construction sector buoyed by the Canterbury rebuild and Auckland's housing shortage, and record inflows of tourists and net migration supporting consumer demand.
The survey of 925 firms doesn't directly cover agriculture, but showed increased confidence across most regions, with the recent hike to the forecast payout to dairy farmers underpinning gains in rural areas.
Principal economist Christina Leung said NZIER expects annual economic growth of 3.5 percent in the current year, before moderating to an annual 3 percent pace over the next five years. In the June quarter, she had been expecting annual growth of 3 percent this year, slowing to 2.8 percent thereafter.
While firms want to take on new staff, they're still finding it hard to find workers, with a 41 percent saying it was difficult to get skilled labour and a 14 percent struggling to hire unskilled labour.
"Firms report increased difficulty in finding labour, and this may have limited the extent to which firms could increase headcount over the past quarter," Ms Leung said. "The difficulty in finding labour is particularly acute for skilled labour, with shortages at levels not seen since December 2007."
She said the limited ability of firms to raise prices meant inflation would probably stay subdued for the rest of 2016.