Businesses are choosing liquidity over long-term capital as borrowing costs bite
New Zealand businesses have grown more cautious about long-term investment over the past decade, favouring liquid assets and near-term stability over committing capital to long-term projects. NZIER researchers warn the pattern could weigh on productivity and wage growth if it persists.
A new NZIER Insight, authored by Roshen Kulwant and Nam Bui, examines whether shifting risk appetite is behind the trend. The findings draw on business survey data, balance sheet indicators, and lending conditions to build a picture of firms that have maintained profitability — return on equity held at around 12% in 2024 — but are increasingly reluctant to commit to major capital projects.
Cash is king — but at what cost?
One of the clearest signals in the data is a steady rise in current assets as a share of total assets. According to the Stats NZ Annual Enterprise Survey, that share climbed from 27% across all industries in 2018 to 31% in 2024, at a pace of around 0.6 percentage points per year. Meanwhile, investment in fixed tangible assets such as buildings, machinery, and equipment grew at a steadier, slower pace — a pattern where overall asset growth masks a retreat from capital-intensive projects.
NZIER notes the shift should be interpreted carefully, as it may partly reflect inventory accumulation or valuation effects rather than a deliberate retreat from long-term investment. But to the extent it is behavioural, the report points to economic uncertainty, higher interest rates, and tighter credit conditions as likely drivers.
That pressure has only deepened in recent months. A CA ANZ survey of nearly 700 finance professionals found 68% of New Zealand businesses are already feeling the direct economic effects of the Middle East conflict, with eight in ten reporting increased costs and six in ten citing heightened risk and uncertainty.
Borrowing costs squeezed harder than mortgage rates
Part of the explanation lies in the cost of borrowing itself. Business loan yields peaked at 7.9% in April 2024 — the highest in over a decade — and diverged sharply from residential mortgage rates from early 2021. Although yields have since eased, they remain well above pre-COVID levels. Credit availability also tightened, particularly for commercial property and corporate loans, where banks reported reduced lending appetite and stricter terms through 2022 and 2023.
Smaller and more leveraged firms bore the brunt of the tightening cycle. Larger corporates with stronger balance sheets proved more resilient, with institutional loan availability holding up comparatively well. The rate outlook offers little near-term relief — financial markets are pricing in multiple OCR hikes over the next year, with ASB forecasting increases from July and ANZ signalling three hikes from the same month.
A rational response — but a costly one
NZIER concludes that the cumulative weight of evidence points to a "'wait-and-see' approach to investment, where preserving optionality is prioritised over committing to long-lived capital."
The report is careful to note this "may reflect rational risk management rather than a deterioration in firm fundamentals."
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