ASB and Kiwibank economists highlight divergence between optimism and activity

Business confidence rose in the June 2025 quarter, according to the NZIER Quarterly Survey of Business Opinion (QSBO), but actual activity and hiring trends suggest New Zealand’s economic recovery remains sluggish.
The Q2 survey, which ran from May 23 to June 23, captured responses after the NZ budget and the monetary policy statement (MPS), as well as global uncertainty triggered by the Iran-Israel conflict and tariff risks.
Business confidence rises but economic conditions remain weak
“Firms’ general business confidence improved, with a net 27% of firms optimistic over the NZ economic outlook,” ASB senior economist Mark Smith said. However, “experienced domestic trading activity moved deep into contraction mode,” and while expectations for Q3 lifted, many firms remain cautious.
Retailers led the business confidence rebound, with a net 40% expecting improved conditions, followed by the services sector (24%) and manufacturing (20%). Building sector sentiment weakened from +6 to +3 amid weak demand and high costs.
Demand the key constraint despite falling inflation pressure
“Insufficient demand still looks to be the major handbrake,” Smith said. A large 68% of respondents cited lack of sales as the main barrier to expanding output. In contrast, just 6% cited insufficient labour.
Capacity utilisation slipped to 89.4% in Q2 (from 90.5%), especially in construction. However, investment intentions saw a modest lift, likely spurred by budget incentives and expectations of lower interest rates.
“Investment intentions improved for both building investment intentions (-1 from -4 in Q1), and plant and machinery investment (to 8 from -2 in Q1),” Smith said.
Hiring remains cautious, with surplus labour persisting
“Actual hiring in the current quarter was less soft at -12 for Q2 (from -17 in Q1),” Smith said, with expectations for Q3 modestly improving. Labour remains readily available but caution still defines hiring plans.
Despite improvements, Smith warned that firms’ caution could lead to higher unemployment, though slower labour force growth may limit the rise.
Costs falling, but profits still under pressure
Pricing metrics from the QSBO were weak, with a net 1% of firms lowering prices in Q2. Cost metrics (experienced 42%, expected 37%) eased, but margins remain tight. Profitability was still in the red, at -31%.
“These readings point to annual CPI inflation remaining well below 3%,” Smith said, supporting RBNZ’s case for further easing.
Kiwibank: Optimism masks current struggles
Kiwibank chief economist Jarrod Kerr echoed the divergence between sentiment and reality.
“Being optimistic is one thing... A net 27% of firms expect brighter days ahead... In the same breath, a net 23% of firms recorded a decline in activity,” Kerr said.
Retailers were optimistic, but many firms reported “a lack of sales” as their top concern.
“The survey’s divergence mirrors the feedback we’re hearing from our SME business owners,” Kerr said.
Inflation contained, but risks remain
Price-related indicators showed inflation remains subdued.
“A net 1% of firms had dropped their prices... and a net 2% expect to do the same in the coming quarter,” Kerr said.
He cautioned about ongoing global risks: “The risks to the global outlook... remain tilted to the downside.”
While business sentiment has steadily improved over the past year, Kerr warned, “The economy is crawling, not running, out of the recession... The current reality still bites.”
For more insights, read the commentaries from ASB and Kiwibank.