Just as inflation pressures accelerate, business confidence sinks. More than half of surveyed businesses are to raise prices in early 2022

Here is the NZIER Quarterly Survey of Business Option (QSBO) media release.

The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows business confidence and demand fell as the COVID-19 outbreak dragged on. The December 2021 QSBO survey was carried out from 8 November 2021 to 10 January and captured the effects on Auckland and its neighbouring regions in lockdown and domestic and international border restrictions. With new COVID-19 variants emerging and overwhelming healthcare systems in other major countries, uncertainty over how the pandemic will evolve remains high, and businesses have become more cautious about investment.

A net 34 percent of firms expect a deterioration in general economic conditions over the coming months on a seasonally-adjusted basis – an increase from the net 11 percent of firms feeling pessimistic in the previous quarter. Meanwhile, a net 1 percent of firms reported weaker demand in their own business in the December 2021 quarter.

[As part of processing the December 2021 responses, we identified some processing errors with the September 2021 quarter survey that had been masked by the effects of lockdown at the time. Due to this, some of the September 2021 QSBO results have now been revised. Broadly, the revisions show activity and profitability were weaker and inflation pressures stronger in the September quarter than was previously reported. Business confidence measures are unaffected. We regret these errors and apologise for any problems these may have caused.]

The manufacturing sector is the most downbeat

The manufacturing sector is now the most downbeat of the sectors surveyed, with a net 34 percent of manufacturers surveyed expecting a worsening in the economy over the coming months. A decline in both domestic and export demand and intensifying cost pressures drove much of this pessimism.

The services sector was also particularly downbeat in the December quarter, partly reflecting the relatively greater impact of COVID-19-related containment measures on activity in this sector. Intense cost pressures are also weighing on profitability in the sector. 

The building sector is feeling pessimistic as cost pressures continue to intensify, with a net 92 percent of building sector firms reporting an increase in costs in the December quarter. The pipeline of construction is solid, with the architects’ measure of activity in their own office pointing to strong demand across residential, commercial and Government work.

Labour shortages constrain businesses

Businesses are still looking to hire despite the uncertainty about how the pandemic will evolve but continue to face acute labour shortages. This is reflected in both the high proportion of firms reporting difficulty in finding both skilled and unskilled labour and the highest proportion of businesses now reporting labour as the primary constraint on their business.

Inflation pressures accelerate

Acute labour shortages are underpinning a lift in wage growth, and this is contributing to higher costs for businesses. A net 61 percent reported increased costs in the December quarter – the highest level since June 2008. Cost pressures were particularly intense in the building and retail sector, likely reflecting the effects of global supply chain disruptions due to the pandemic.

Over half of businesses raised prices in the December quarter, and a net 65 percent plan to increase prices in the next quarter. These results point to inflation pressures in the New Zealand economy remaining strong over the coming year.

Acceleration in inflation pressures

* September 2021 cost and pricing indicators have been revised higher