New report shows a split between rising confidence and actual economic activity
While NZIER’s latest Quarterly Survey of Business Opinion (QSBO) indicated rising business confidence, real activity remains soft, with insights from leading economists at Westpac, Kiwibank, and ASB shedding light on the complexities of New Zealand’s economic recovery.
Overview of current business sentiment and activity
Christina Leung (pictured above left) from NZIER reported a mixed economic scenario at the close of 2024.
The latest QSBO revealed a rise in business confidence, with a net 9% of firms optimistic about improving economic conditions. However, this sentiment contrasts sharply with the reality of business operations, where a net 26% of firms report a decline in activity.
Employment and investment cautions
Despite the uptick in sentiment, businesses remain cautious, evidenced by a net 17% reduction in staff numbers and hesitancy towards capital investments in the uncertain economic climate.
This cautious approach reflects ongoing concerns about sustainable demand growth.
Sector-specific dynamics
The building sector showed a significant rebound in confidence, with a net 29% positivity rate about the economic outlook, a notable shift from previous pessimism.
However, this optimism has not yet translated into increased orders or output, highlighting a wait-and-see approach in the sector.
Insights from major financial institutions
Westpac’s view
Michael Gordon (pictured above centre), senior economist from Westpac noted that the lift in business sentiment is more reflective of future expectations rather than current performance.
Gordon stressed that although interest rate cuts have boosted confidence, the real economy continues to struggle with weak demand and soft activity.
Kiwibank’s analysis
Kiwibank highlighted that the business confidence, as reported by the QSBO, suggested potential economic recovery on the horizon. However, the bank cautioned that the actual recovery in terms of business activity is still to materialise, reflecting an economy that may still be in recession.=
ASB’s perspective
Nick Tuffley (pictured above right) from ASB acknowledged modest signs of improvement but pointed out that the economy needs a strong growth driver beyond interest rate cuts.
Tuffley emphasised the continuing challenges in the demand/sales sector as the largest constraint on business expansion, suggesting further economic measures may be necessary.
Economic outlook amidst inflation concerns
Inflation pressures appear to be softening, a positive sign for tackling inflation. However, the subdued demand continues to dampen the capacity pressures, with only a small fraction of firms raising their prices.
This scenario is corroborated by all three financial institutions, which note the delicate balance between fostering economic growth and managing inflation.
Navigating through economic uncertainty
As New Zealand progresses into 2025, the economic landscape presents a complex picture of growing business confidence shadowed by persistently weak demand and cautious investment and hiring practices.
The insights from Westpac, Kiwibank, and ASB underline the challenges ahead, suggesting that while there is potential for recovery, significant hurdles remain.
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