Business investment remains at historically high levels and the economy should continue to perfrom with GDP growth above 3%.

That is signalled in the latest NZ Institute of Economic Research quarterly survey of business opinion released this morning.

The survey, which has been running since 1970 and covers 2500 of the country’s non-farming firms, shows a slight fall in optimism on the previous quarter but firms’ expectations for their own year is still consistent with GDP growth of “slightly above 3%,” senior economist Christina Leung says.

Firms’ expectations of their own business investment is at levels last seen more than 20 years ago (see graph below).

Hiring intentions are strong but there has been minimal flow through to labour or skills shortages, partly due to high net migration, she says.

“With labour supply meeting the increased labour demand, wage growth should remain contained.”

Similarly, pricing intentions are relatively flat. Both prices and costs have plummeted in the past couple of years and both have, in this latest survey, been below what firms anticipated.

A historically low net number of firms report cost pressures and few firms plan to raise prices, the survey report says. “Although there has been a slight pickup in pricing intentions among retailers, manufacturing and construction sectors remain near deflation.”

Even parts of the economy expected to show a pullback after last year’s optimism are strong.

Manufacturing is the main one: the sector is strongly connected to the Australian economy and the combination of the recent run of economic bad news from across the Tasman, plus the near-record strength of the New Zealand dollar versus the Australian currency, means a fall is anticipated.

“We were pleasantly surprised with the manufacturing prospects, especially exports – those are holding up,” Ms Leung says.

“The New Zealand economy is quite resilient compared to what is going on outside now. The higher New Zealand dollar is a concern but the other factor is the strong domestic growth.”