New NZIER data links tighter credit conditions to falling business investment
New Zealand firms are showing clear signs of increased caution around investment, according to new NZIER research that points to tighter credit conditions and higher borrowing costs as key drivers behind the shift.
The report, published as part of NZIER's Public Good Programme, examined firm-level investment behaviour using data from the NZIER Quarterly Survey of Business Opinion, the Reserve Bank (RBNZ), and Stats NZ. It found that while firms have broadly maintained profitability, many are prioritising liquidity and balance sheet resilience over committing to longer-term capital projects.
Borrowing costs have climbed sharply
By 2023–24, businesses were paying close to 8% to borrow – the steepest rate in over a decade – after a February 2021 shift saw business lending costs break away from, and then exceed, floating mortgage rates entirely. Yields have since eased from their April 2024 peak of 7.9% but remain well above pre-COVID-19 levels.
That pressure has continued to build since the report's data was compiled. The RBNZ raised the official cash rate to 2.75% in September – its second consecutive hike – and has signalled further increases may follow this year, meaning the borrowing-cost pressure NZIER identifies is unlikely to ease in the near term.
That tightening builds on a trend already visible in the RBNZ's own Credit Conditions Survey, which found weaker credit availability disproportionately affecting smaller, more leveraged firms since 2022, while larger corporates with stronger balance sheets have generally retained more resilient access to lending. Loan demand fell sharply through 2022 and 2023 as borrowing costs peaked, with banks reporting stricter terms particularly for commercial property and corporate loans.
Firms are holding more cash, less committed capital
Stats NZ's Annual Enterprise Survey data shows current assets – including cash, receivables and inventories – have grown from 27% to 31% of total assets across all industries between 2018 and 2024, a trend the report says "may be consistent with greater financial caution," while cautioning that valuation effects and industry composition shifts may also be contributing factors.
Investment in fixed tangible assets such as buildings, machinery, and equipment has continued to grow, but at a steadier pace than firms' overall asset bases – a pattern the researchers describe as "consistent with a 'wait-and-see' approach to investment," where firms preserve financial flexibility rather than commit to long-lived capital. The report frames this as a plausible risk-management response rather than necessarily a warning sign about the health of individual firms.
Monthly survey data backs this up: ANZ's Business Outlook survey recorded investment intentions holding at a net 22.1% in August, little changed from the month before – suggesting the caution NZIER identifies has persisted into the current quarter, a relevant signal for brokers gauging business lending appetite among clients right now.
There are early signs the picture may be starting to shift, however: Tony Alexander's September Mint Business Insights survey found capital expenditure intentions strengthening and, for only the second time since the survey began in 2023, more businesses planning to raise inventory than cut it – even as political uncertainty ahead of the 7 November election remains businesses' top concern.
Read the full NZIER report here for more information.
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