Business confidence in New Zealand improved in the June quarter, according to the latest NZIER Quarterly Survey of Business Opinion, with a seasonally adjusted net 12% of firms expecting economic conditions to improve over coming months, up from just 1% in the previous survey. The rebound came as global fuel prices eased following the US-Iran Memorandum of Understanding that guaranteed ship passage through the Strait of Hormuz, helping reverse some of the pessimism that followed the earlier Middle East conflict. However, demand remained subdued, with a net 1% of firms reporting stronger activity in their own businesses, highlighting that the improvement was driven more by sentiment than a broad-based pickup in economic conditions.
Despite stronger confidence, firms remained cautious about expanding capacity. A net 10% reduced staff numbers during the quarter, while a net 1% expect further declines in employment over the next three months. Investment intentions also stayed weak, with a net 3% planning to reduce spending on buildings, plant and machinery over the coming year. The survey period concluded before the latest escalation in US-Iran tensions and renewed surge in oil prices, suggesting hiring and investment plans could face additional pressure as geopolitical uncertainty intensifies ahead of New Zealand’s general election in November.
More concerning for the Reserve Bank of New Zealand, the survey pointed to a renewed build-up in inflation pressures. Firms reporting higher costs increased from a net 37% to more than half, while the proportion able to pass those costs through to customers rose to a net 41%. Cost pressures were particularly evident in the building and retail sectors, although weak construction demand continued to limit pricing power in parts of the economy.
Survey Data
| Component | Current | Trend |
|---|---|---|
| General Economic Outlook | +12% | Improving |
| Own Activity | +1% | Broadly Flat |
| Employment (Past Quarter) | -10% | Weaker |
| Employment Intentions (Next Quarter) | -1% | Slightly Weaker |
| Investment Intentions (Next 12 Months) | -3% | Weaker |
| Firms Reporting Higher Costs | >50% | Rising |
| Firms Raising Selling Prices | 41% | Rising |
Market Takeaways
- Business confidence improved markedly, with firms becoming more optimistic about the economic outlook.
- Demand remained subdued, indicating confidence has yet to translate into stronger business activity.
- Hiring and investment intentions stayed cautious, reflecting ongoing geopolitical and domestic political uncertainty.
- Cost pressures intensified significantly, with more firms reporting higher input costs and greater ability to pass them on to customers.
- The survey suggests New Zealand’s recovery is continuing gradually, but inflation risks have become more persistent.
- For the RBNZ, the combination of improving confidence and firmer pricing power reinforces a cautious, data-dependent policy stance.
