Confidence lifts as fuel prices ease, though economists warn the recovery may prove fragile
New Zealand business confidence improved in the June quarter, with a net 12% of firms expecting better general economic conditions ahead, up sharply from a net 1% in March, according to the NZIER Quarterly Survey of Business Opinion.
Firms' own trading activity, however, barely moved, with only a net 1% reporting stronger activity over the quarter — a gap that has both banks' economists cautious about reading too much into the improvement.
The survey's timing explains much of the lift. Conducted between 10 June and 7 July, it captured a brief window when global fuel prices eased following a US-Iran memorandum guaranteeing safe passage through the Strait of Hormuz.
Westpac senior economist Michael Gordon noted that nearly all responses landed on two dates: 10 June, when the survey opened at a net 5% negative, and 17 June, just after the Memorandum of Understanding was signed, when sentiment swung to a net 20% positive. With hostilities flaring again since, Gordon said "the first batch of responses is probably more representative of where sentiment would stand if the survey was re-run today."
Cost pressures point to stickier inflation
That fragile confidence sits alongside a sharper signal on costs. A net 41% of firms reported raising prices over the past three months, the highest reading since September 2023, while a net 54% intend to raise prices again in the coming quarter — the strongest signal since March 2023, when annual inflation was running at 6.6%.
ASB senior economist Kim Mundy said the increase was striking given fuel prices were actually falling during the survey window, warning "this suggests a risk that price rises could be more persistent."
The short horizon of the survey adds a further wrinkle. Gordon noted that the three-month outlook window "doesn't tell us a lot about the potential for second-round inflationary effects" — meaning the true inflationary impact of the fuel shock may still be working its way through.
What it means for the OCR — and borrowers
Despite firmer confidence, businesses remain cautious on hiring and investment. A net 10% of firms cut staff in the quarter, and a net 3% plan to reduce investment in buildings, plant, and machinery over the coming year. Construction remains the most pessimistic sector, though as NZIER noted, building firms have continued cutting prices "despite increasing costs" as weak demand bites.
For advisers, the combination of firmer pricing intentions and softer capacity utilisation leaves little room for near-term rate relief. ASB expects the Reserve Bank will want to return the OCR "back to neutral levels sooner rather than later," forecasting it will reach 3.25% by the end of 2026.
For more insights, read the commentaries from Westpac and ASB.
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