Business confidence across New Zealand hit a 20-year high this month, as Kiwis latch onto the strengthening economic activity.

According to the NZIER’s March 2014 quarter Quarterly Survey of Business Opinion (QSBO), trading activity, which closely mirrors GDP growth, accelerated to the fastest pace since December 2003 – when annual GDP growth was near 4.5%.

“While we do not expect economic growth to hit such heady rates in the current business cycle, as credit conditions are very different now, our latest survey paints a clear picture: the recovery is strengthening," says Shamubeel Eaqub, Principal Economist, NZIER.

Firms are translating optimism into jobs and investment

Eaqub says business confidence held steady in the March quarter, and remains at the highest level since mid-1994 with optimism and activity being realised into hiring, investment, increasing margins and profits.

Intentions to invest in building, in particular, are soaring and are at the highest level since records began in 1975.

Regional performance varies

The QSBO shows a broadening recovery across regions, although there are weak spots. Activity is particularly strong in Auckland, Canterbury and much of the South Island. But Northland, Bay of Plenty, Gisborne-Hawkes Bay, and Otago are still contracting according to the QSBO.

Inflation increasing; interest rates to rise

Price increases are accelerating, adds Eaqub, with firms finally implementing intended price increases as consumer demand strengthens. Fattening margins and growing sales are boosting profitability.

This is consistent with increasing inflation, but also with more investment and a lift in economic activity.

Increased inflationary pressure means more financial services sector firms expect interest rates will rise (a net 87%, up from 69% in December).