Photo: RNZ / Rebekah Parsons-King
Business confidence has fallen to its lowest level since late 2024, with global geopolitical tensions significantly impacting firms’ economic outlook, according to the latest NZIER Quarterly Survey of Business Opinion (QSBO).
The survey, conducted between March 6 and April 10, revealed that a mere net 1 percent of firms anticipate an improvement in general economic conditions in the coming months. This marks a sharp decline from the net 39 percent who held such optimism in the December quarter.
NZIER noted that confidence deteriorated progressively during the survey period, coinciding with an escalation in the conflict involving the United States, Israel, and Iran, alongside renewed disruptions to global supply chains.
Despite this significant drop in overall confidence, firms’ own trading activity remained largely stable in the March quarter on a seasonally adjusted basis, showing a slight improvement from the previous quarter when a net 3 percent of firms reported a decrease in activity.
Businesses also expressed somewhat greater optimism regarding demand in the upcoming quarter, suggesting that domestic economic conditions have maintained resilience despite the blow to confidence from international developments.
**Wide Split Between Sectors**
However, the aggregate survey results conceal notable differences across various sectors. The building sector emerged as the most pessimistic, with a net 28 percent of construction firms foreseeing a worsening general economic outlook.
NZIER attributed this somber mood to weaker construction demand, with many firms also reporting declines in new orders and output during the March quarter. Conversely, manufacturing stood out as the most optimistic sector, with a net 34 percent of manufacturers expecting economic conditions to improve over the next few months.
NZIER indicated that the stronger sentiment in manufacturing reflects robust international demand experienced throughout the quarter.
**Caution in Hiring and Investment**
This newfound confidence, however, is not translating into increased hiring or investment. A net 9 percent of firms reduced their staff numbers in the March quarter, and a net 5 percent anticipate further headcount reductions in the next quarter.
Investment intentions have also softened. A net 12 percent of firms plan to scale back investment in buildings over the coming year, and a net 9 percent intend to reduce spending on plant and machinery.
Christina Leung, NZIER principal economist, stated that businesses are becoming more cautious. She highlighted that geopolitical risks are exacerbating existing uncertainties and potentially jeopardizing the fragile economic recovery that began to emerge late last year.
Despite a recent surge in fuel prices, Leung noted that cost and pricing pressures remain largely contained. This is primarily because weak demand continues to limit firms’ ability to pass on higher costs to consumers.
NZIER continues to expect the Reserve Bank to initiate its tightening cycle in July, commencing with a 25 basis point increase in the official cash rate. However, the exact timing will heavily depend on how inflation pressures evolve. For now, inflation expectations among firms hover near the top of the Reserve Bank’s target band, at approximately 3 percent, indicating elevated but not accelerating inflation pressures.
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