Businesses feeling more upbeat

Business confidence increased in the final quarter of 2024, with a net nine per cent of firms expecting an improvement in general economic conditions over the coming months, according to the latest NZIER Quarterly Survey of Business Opinion

The seasonally adjusted figure in the latest study by the NZ Institute of Economic Research (NZIER) contrasts with the net 4 per cent of firms that felt downbeat about the economic outlook in the previous quarter.

Despite the improvement in business confidence, the measure of companies’ own trading activity continues to suggest a weak demand environment, with a net 26 per cent reporting a decline in activity in their own business in the December quarter. 

Christina Leung, principal economist, says: “When it comes to expectations of activity in the next quarter, a net nine per cent of firms expect an increase. Similar to the September quarter headline results, there is a contrast between firms experiencing weak activity and expecting activity to improve in the next quarter.”

Although sentiment has improved, and there are expectations of a recovery in activity, firms remained cautious about hiring and investment. 

A net 17 per cent reduced staff numbers in the December quarter and Leung, pictured, adds a notable proportion of firms intend to reduce investment in buildings, and plant and machinery over the coming year. 

“Firms look to be holding off on investment and hiring until they have more conviction about a sustained improvement in demand in their own business.”  

The building sector was the most upbeat industry in the December quarter, with a net 29 per cent of its companies surveyed feeling positive about the general economic outlook for the coming months. 

The retail sector also remained positive and a notable proportion of retailers expect a recovery in the current quarter. 

“While some retailers were able to raise prices, retail sector profitability remained weak as cost pressures intensified,” notes Leung. 

The quarterly survey shows cost and pricing indicators suggest a continued easing in inflation pressures in the New Zealand economy. 

The proportion of firms reporting higher costs decreased to 35 per cent in the final quarter of 2024 and the proportion of companies raising prices during that period was historically low at 10 per cent. 

“The weak demand continues to reduce capacity pressures, which in turn weighs on inflation pressures in the New Zealand economy,” says Leung. 

“This is reflected by the continued dominance of the lack of sales, which is reported by firms as the primary constraint on their business.”