New Zealand growth likely to continue at a solid pace for the remainder of 2016

The New Zealand Institute of Economic Research's (NZIER) closely-watched Quarterly Survey of Business Opinion showed that New Zealand's business confidence perked up in September quarter to a two-year high.

In seasonally adjusted terms, a net 26 percent of firms were optimistic about the general outlook, up from 19 percent in June. Net confidence about businesses' own activity over the next quarter improved to 32 percent from 22 percent in the June quarter (the highest since mid-2014).

Construction and retail business confidence improved, while manufacturing sector confidence was steady. Services sector confidence also improved. A net 27 percent of businesses expected to hire more workers over the next quarter, up from 13 percent in the last quarter and its highest level since 1973. However, a net 41 percent said it was difficult finding skilled labour and 14 percent said it was difficult finding unskilled labour.

NZIER's capacity utilization measure -- one measure of inflationary pressures -- fell to 92.5% from 92.9%. The survey's other measures of inflationary pressures also showed relatively weak inflationary pressures, despite indicators of strong economic growth. Data suggests inflation is likely to remain subdued over the remainder of 2016.

But with solid momentum in activity and a tightening labour market, it seems like only a matter of time before cost and price pressures start to show through, seeing CPI inflation move gradually higher," said WIB IQ in research report.

NZIER Economist Christina Leung said she expected the Reserve Bank would still be able to cut the Official Cash Rate two more times to a trough of 1.5 percent, with one cut with the Reserve Bank's next Monetary Policy Statement (MPS) on November 10 and one more in mid 2017.