New Zealand business confidence surges to decade high as recovery gathers pace

Summary:

• Business confidence jumps to highest level since 2014

• Firms’ own activity stabilises as recovery takes shape

• Hiring and investment intentions turn decisively positive

• Manufacturing leads rebound; construction remains weakest

• Inflation pressures contained despite improving demand

Business confidence in New Zealand has jumped to its strongest level in more than a decade, according to the latest Quarterly Survey of Business Opinion (QSBO) from New Zealand Institute of Economic Research, adding to evidence that the economy is emerging from a prolonged slowdown as lower interest rates begin to flow through.

The survey showed a net 39% of firms expect general economic conditions to improve in the coming months, up sharply from a net 17% in the September quarter. That marks the highest level of confidence since March 2014 and a decisive turnaround after an extended period of pessimism.

Firms’ own trading activity has also stabilised, with only a net 3% reporting a decline in activity in the December quarter. While the gap between confidence and realised activity persists, NZIER said the results suggest an economic recovery is starting to take shape.

Improved sentiment is translating into stronger intentions. A net 22% of firms plan to increase staff numbers in the next quarter, while investment plans for buildings and plant have turned positive after being negative in the September quarter. There are also early signs spare capacity is beginning to shrink, with a small increase in firms reporting difficulty finding skilled labour.

The lift in confidence was broad-based. Manufacturing is now the most optimistic sector, supported by stronger domestic and export demand. Retail and services sentiment also improved, although profitability remains under pressure. Construction continues to lag, with weak demand, declining profitability, and ongoing price cuts keeping cost pressures subdued.

Overall, cost and pricing indicators suggest inflation pressures remain contained. With demand improving but spare capacity still evident, NZIER expects no further OCR cuts, forecasting the policy rate to trough at 2.25% before the Reserve Bank of New Zealand begins tightening in the second half of 2026.

—

The NZ QSBO is a widely watched indicator of New Zealand’s economic health:

• it provides insight into the views of businesses on the current state of the economy and expectations for the future
• the survey has been running since 1961

Key indicators from the survey include:

• Business Confidence, measuring overall sentiment in the business community about the state of the economy. It can be an important leading indicator of economic activity, as positive business confidence can lead to increased investment and hiring, while negative confidence can have the opposite effect.
• Own Activity Outlook, which assesses firms’ expectations of their own trading activity in the next three months. It’s considered one of the more reliable indicators of future GDP growth.
• Employment and Investment Intentions indications are used to show whether businesses plan to increase or decrease investment in capital and hiring. This can be a good indicator of future employment and investment activity.
• Capacity Utilization measures how much of their potential output firms are currently producing. High capacity utilization can indicate strong demand and potential inflationary pressure.
• Cost and Price Indicators are used a gauge of inflation pressures. These measure firms’ expectations of changes in costs and prices, which can be an indicator of future inflation.

This article was written by Eamonn Sheridan at investinglive.com.