NZIER’s QSBO shows a strong pick-up in demand and confidence - Quarterly Survey of Business Opinion, July 2021
06 July 2021
NZIER Quarterly Survey of Business Opinion
Embargoed until 10 am 6 July 2021
The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows a sharp improvement in both business confidence and demand in firms’ own business.
A net 10 percent of businesses expect an improvement in the economic outlook on a seasonally adjusted basis – a turnaround from the net 8 percent of businesses who had expected a deterioration in the previous quarter. Firms’ own trading activity also picked up strongly, with a net 26 percent of businesses reporting increased demand in the June quarter. These results suggest the recovery in the New Zealand economy will remain robust over the coming year.
Building sector particularly buoyant
Strong construction demand is boosting confidence in the building sector, with a strong pipeline of residential, commercial and government construction work over the coming year. The pipeline of residential construction work is particularly strong, in line with annual dwelling consent issuance rising to record highs. Against this backdrop of solid demand, capacity pressures are becoming more acute in the construction sector. These pressures reflect COVID-related supply chain disruptions and labour shortages, with building construction firms’ difficulty finding skilled labour at the highest for the survey's history (going back to 1976). Nonetheless, profitability in the building sector is the strongest since December 2002, reflecting the greater ease with which firms are passing on the increased costs by raising prices.
Conditions in the other sectors are more mixed, with service sector firms feeling more positive but manufacturers and retailers feeling downbeat. Although demand has been improving, costs have also been rising strongly partly because of the difficulty in sourcing inventory.
Firms increase hiring and investment
Even so, firms are looking to expand further through hiring and investment. In particular, a net 15 percent of firms increased headcount in the June quarter, while a net 20 percent of firms are looking to increase investment in plant and machinery over the coming year. This increased focus on investment in plant and machinery likely reflects the labour shortages that firms are facing, which is encouraging firms to consider the use of labour-saving technology. The scarcity of skilled and unskilled labour is at the most acute on record over the history of the survey, with firms finding it particularly difficult to hire skilled labour.
Inflation pressures intensify
These labour shortages and supply chain disruptions are leading to a further build-up of capacity pressures across the New Zealand economy. The increase in both costs and prices points to rising inflation pressures, which is underpinning expectations of interest rate increases from the Reserve Bank over the coming year.
Labour shortages at the most acute for the history of QSBO
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The New Zealand Institute of Economic Research has conducted its Quarterly Survey of Business Opinion since 1961. It is New Zealand’s longest-running business opinion survey. Each quarter we ask around 4,300 firms about whether business conditions will deteriorate, stay the same, or improve. The responses yield information about business trends much faster than official statistics and act as valuable leading indicators about the future state of the New Zealand economy. Long term series derived from the survey are held at the NZIER and are available to NZIER members via our website at www.nzier.org.nz