New Zealand business confidence diminishes further in second quarter, NZIER says

  • 02/07/2024

New Zealand's business confidence is further diminishing as demand remains damp from higher interest rates, a think tank says.  

A net 35 percent of businesses surveyed expected conditions to worsen, compared with 25 percent in the previous quarter, according to the New Zealand Institute of Economic Research's (NZIER) quarterly survey of business opinion.  

The report said the high interest rate environment and increased uncertainty about the economic outlook has forced businesses into states of caution regarding hiring and investment.  

"A net 35 percent of firms plan to reduce investment in buildings, while a net 27 percent plan to reduce investment in plants and machinery over the coming year. Many firms are holding off on investment until they feel more certain about when demand will recover," NZIER said. 

The think tank noted a quarter of businesses surveyed also reduced staff numbers in the second quarter due to weak demand.  

ASB senior economist Mark Smith said the survey's results were "hugely encouraging" for the Reserve Bank (RBNZ).  

Smith added official cash rate (OCR) cuts before the end of the year "remain a distinct possibility". 

"Pricing and cost metrics have cooled and suggest the return to sub 3 percent inflation is in prospect," he said in a note after the survey's release.  

New Zealand business confidence diminishes further in second quarter, NZIER says
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"Spare capacity has increased in the labour market, and this should ensure that inflation settles below 3 percent.  

"[OCR] cuts could come as soon as November but the RBNZ is likely to err on the side of caution and could delay cuts to 2025."  

The RBNZ's own forecasts showed the first OCR reduction coming in the second half of 2025.  

Newshub.