New Zealand business confidence rose to its highest in more than 14 years in July amid signs of a broader economic expansion.

A net 52.8 percent of firms surveyed expect general business conditions to improve in the year ahead, up from 50.1 percent in June and the highest level since April 1999, according to the ANZ Business Outlook.

Firms seeing a pickup in their own business activity in the year ahead eased to a net 43.7 percent, from a three-year high of 45 percent in June.

Sentiment remains highest in the construction sector, recording the second-highest level of optimism for the sector in 3.5 years, even as it eased to a net 67.9 percent from a net 73.4 percent last month.

Manufacturing, the least optimistic sector, lifted 5 points to a net 44 percent, narrowing the gap between the least and most optimistic sectors.

"We can see signs of clustering across sectors, that is, less divergence between strong and weaker sectors," ANZ New Zealand chief economist Cameron Bagrie says in a statement. "That's a good sign the expansion may be broadening."

Improved business confidence combined with upbeat consumer confidence pointed to the potential for 3.9 percent growth by the end of the year. Although the economy does not have the capacity to grow that fast sustainably, there is no doubting it has "a better feel under the bonnet", Mr Bagrie says.

Construction firms are expecting their golden run to continue with expectations for housing and non-residential construction work at four year highs, ANZ says. That is being driven by rebuilding following the Christchurch earthquakes, housing shortages, seismic strengthening and core infrastructure.

Capacity utilisation in the construction sector is the highest across all sectors and is already higher than the typical level that prevailed during the mid-2000s housing boom, the bank says.

Inflation expectations were unanimously higher in July, with overall inflation expectations lifted to 2.4 percent, led by a 2.6 percent rise expected in the construction sector.

That suggests we are at a turning point, with a net 30 percent of respondents expecting to raise their prices over the next 12 months.

The survey showed profit expectations increased to a 14-year high, led by the service sector. Investment intentions weakened from last month's 10-year high but remains at the second-highest level in eight years.

Employment expectations also slipped, but held at the second-highest level in three years. Export intentions continued to recover.

Helping boost sentiment is higher house prices, low interest rates, high dairy prices, rising net migration, the rebuilding of Christchurch and a reasonably stable global backdrop, ANZ says.

BusinessDesk