Central New Zealand business confidence plummets to record low

Businesses are behaving as if a recession is on the horizon. Photo / Mark Mitchell

Business confidence in central New Zealand continues to tumble and has reached a historic low, a survey revealed exclusively by the Herald shows.

A net negative of almost 80 per cent of businesses surveyed expect the economy to be performing worse in a year’s time compared with the present day.

This is down from a net negative of 43 per cent when these businesses were canvassed during the same period in 2022.

Business Central and Wellington Chamber of Commerce chief executive Simon Arcus said he did not expect such a steep decline in confidence.

“I would describe it as a Covid hangover combined with the heightened expectations of a bounce-back being killed off by interest rates and inflation and the potential for a recession.”

The latest Central New Zealand Business Confidence Survey was conducted at the end of the first quarter of 2023 and paints a gloomy outlook.

More than 200 businesses were surveyed stretching from Gisborne to Nelson. Of these businesses, more than half were from the Wellington region.

The main challenges facing these businesses were labour issues and cost increases, the survey showed.

Almost 80 per cent have raised prices in the past year.

“Cost pressures remain high and businesses have had no choice but to pass these on to customers,” Arcus said.

Business Central and Wellington Chamber of Commerce chief executive Simon Arcus. Photo / Mark Mitchell

Recent Stats NZ data shows inflation was 6.7 per cent in the year to March - a surprise drop in the pace of increase through the March quarter.

Economists expected the Consumer Price Index Data would show inflation staying at between 6.9 per cent and 7.2 per cent.

But despite the decrease in rate, inflation is still high.

Earlier, the Reserve Bank lifted the Official Cash Rate by 50 basis points to 5.25 per cent in its fight against high and persistent inflation. The 11th successive hike took the rate to its highest level since December 2008.

Abhijit Surya, who works for Sydney-based Capital Economics, said at the time the move “will push New Zealand into recession”.

Arcus said levels of demand have already appeared to have cooled significantly for Central New Zealand businesses.

“Businesses are behaving as if a recession is on the horizon, with spending and investment decisions put on hold, even if this is yet to be technically confirmed by the economists.”

Businesses reported it was increasingly harder to find staff compared with before the Covid-19 pandemic.

Almost 90 per cent of them said they have experienced heightened pressure on wages in the past year.

There were signs that inadequate infrastructure was dragging down productivity, with businesses concerned both central and local government were not addressing the practical challenges faced day-to-day by industry, Arcus said.

“In Wellington in particular, there is real frustration that successive councils have failed to make progress on long-promised upgrades and improvements.”