NZ business optimism grows, cost pressures remain high

Businesses are more optimistic despite challenges. Photo / 123rf

• Business sentiment improved despite weaker sales, shedding staff, and increased inflation pressures.
• A net 23% of respondents expect better economic conditions, up from 9% in December.
• Cost pressures rose, with 50% of firms facing increases and 42% expecting further rises.

By RNZ

Business sentiment improved in the three months ended March despite weaker sales, staff cuts, and increased inflation pressures.

The Institute of Economic Research’s closely followed quarterly business survey showed a net 23% of respondents think economic conditions will get better in coming months, compared to a net 9% in the December survey.

Firms reported a decline in their own trading, down to a net 21% in the past quarter, from 24%.

The weakness was expected to ease in the coming quarter, with a net 12% forecasting a lift in their own business from 9% in the previous quarter.

NZIER principal economist Christina Leung said businesses were showing cautious optimism, but were waiting for more evidence that the economy was definitely recovering.

“Despite the optimism about the look ahead, the continued weakness in demand is still driving caution when it comes to hiring and investment.”

Leung said the survey was taken between February and the end of March, before the announcement of United States tariffs and subsequent market turmoil.

“Businesses hate uncertainty and it’s likely the tariffs will negatively impact sentiment.”

Cost pressures increase

Firms reported rising cost pressures, with 50% facing increased costs and 42% expecting further rises.

Leung said the weaker New Zealand dollar likely contributed to that, and the low number of respondents expecting to raise their prices suggested weak demand was holding them back.

She said the retail sector had replaced the building industry as the most optimistic part of the economy.

Leung said she expected further interest rate cuts by the Reserve Bank, to a low of 3.25%.