NZIER’s QSBO shows increased construction demand driving improved sentiment - Quarterly Survey of Business Opinion, January 2021

New Zealand Institute of Economic Research (Inc)
Media release, 19 January 2021

NZIER Quarterly Survey of Business Opinion
The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows a further improvement in business confidence in the final quarter of 2020, as businesses held onto the recovery in sales seen in September.

A net 16 percent of businesses expect a deterioration in general economic conditions over the coming months, on a seasonally adjusted basis – lower than the 38 percent in the previous quarter, and well below the 68 percent of businesses feeling pessimistic in March 2020. When it comes to firms’ own trading activity, a net 1 percent reported reduced demand on a seasonally adjusted basis. This measure suggests a rebound in annual GDP growth to around 2 percent at the end of 2020 from the lockdown lows in mid-2020.

Strong construction demand boosts sentiment in the building sector

The building sector remains the most optimistic of the sectors surveyed, as strong construction demand supports a lift in confidence. With the pipeline of residential, non-residential and Government construction work increasing, building sector firms are hiring to keep up with demand. The rebound in construction activity is driving capacity utilisation in the sector to record highs.

Although sentiment in the other sectors has improved, businesses are generally still cautious about general economic conditions ahead. Demand has improved in most of the other sectors, but firms are still finding it difficult to pass on rising costs by raising prices. This is weighing on firm profitability.

Firms looking to hire and invest

Despite weak profitability, increased certainty about the outlook is encouraging businesses to hire and invest. A net 15 percent of firms are planning to increase headcount in the next quarter, while a net 10 percent of firms are looking to invest in plant and machinery. These results indicate a recovery in employment and business investment over 2021.

As employment demand improves, labour shortages are becoming more acute. This is particularly the case for skilled labour, with a net 43 percent reporting difficulty in finding skilled labour – close to levels seen in early 2020.

Capacity utilisation rises to record highs

The strong rebound in construction demand has underpinned a surge in capacity pressures in the building sector, with capacity utilisation rising to record highs. This increase in capacity pressures should support a lift in wider inflation pressures later in 2021.

Improved investment intentions point to recovery in non-residential construction over 2021

For further information please contact:

Christina Leung
Principal Economist & Head of Membership Services
Ph +64 21 992 985 | Email christina.leung@nzier.org.nz

Background

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.