New Zealand firms are feeling increasingly upbeat about the economy despite actual business activity remaining weak, NZIER’s latest survey shows.
This Quarterly Survey of Business Opinion was taken during March and prior to US President Donald Trump’s new tariff policy, which has triggered a crash in financial markets.
It found a net 23% of firms expected an improvement in business conditions over the next three months, despite a net 21% reporting a fall in their own activity during March.
Christina Leung, deputy chief executive at NZIER, said this had been a reality check for some businesses, as the previous December quarter survey showed a net 9% of firms had expected improvement during March.
There was a risk that they might be disappointed again, she warned, as expectations of recovery were rising faster than more reliable indicators.
For example, the building sector was no longer the most optimistic sector with a net 6% expecting improvement down from a net 29% in the previous quarter. That prediction didn’t come to pass and architects are now seeing less work coming through their own offices.
“Overall these softer expectations of construction activity … that looks to be dampening confidence in the building sector,” Leung said.
Merchants and retailers had overtaken builders as the most optimistic, with a net 24% expecting better days ahead.
However, they may end up disappointed, with conditions still looking challenging. A net 70% reported higher costs due to the weakening NZ dollar, while actual sales contracted.
A net 21% of the services sector are expecting improvement but are still experiencing weak demand and rising costs. Manufacturers also expect better conditions but largely driven by exports, helped by the weak Kiwi dollar.
Leung said even though firms were optimistic about the outlook, they weren’t planning to hire extra staff or make large investments.
A net 17% of firms reduced staff numbers in the March quarter and another 2% were planning to cut in the coming quarter as well. A majority expected to trim investments, as well.
“While businesses are reporting expecting better conditions ahead, for now, they are not putting their money where their mouth is,” Leung said.
“Firms remain cautious and are holding off on hiring staff and making investments until they have greater conviction in the recovery."
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