New Zealand Institute of Economic Research (Inc)
Media release, 14 January 2025
NZIER Quarterly Survey of Business Opinion
Embargoed until 10 am 14 January 2025
The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows increased business confidence in the final quarter of 2024. A net 9 percent of firms expect an improvement in general economic conditions over the coming months on a seasonally adjusted basis. This contrasts with the net 4 percent of firms that had felt downbeat about the general economic outlook in the previous quarter.
Despite the continued improvement in business confidence, the measure of firms’ own trading activity continues to suggest a weak demand environment, with a net 26 percent of firms reporting a decline in activity in their own business in the December quarter. When it comes to expectations of activity in the next quarter, a net 9 percent of firms expect an increase. Similar to the September quarter headline results, there is a contrast between firms experiencing weak activity and expecting activity to improve in the next quarter.
Although sentiment has improved, and there are expectations of a recovery in activity, firms remained cautious about hiring and investment. A net 17 percent of firms reduced staff numbers in the December quarter. A notable proportion of firms intend to reduce investment in buildings, and plant and machinery over the coming year. Firms look to be holding off on investment and hiring until they have more conviction about a sustained improvement in demand in their own business.
The improvement in sentiment was across the sectors surveyed. In particular, the building sector was the most upbeat sector in the December quarter, with a net 29 percent of the building sector firms surveyed feeling positive about the general economic outlook for the coming months. This was a sharp turnaround from the 9 percent of building sector firms feeling pessimistic in the September quarter and over half in the first half of 2024.
However, a significant proportion of building sector firms reported a contraction in new orders and output, but they expect a recovery in activity ahead. This expectation is supported by the pipeline of construction work as indicated by the measure of architects’ work in their own office. While architects expect the pipeline of housing and commercial construction to remain broadly flat over the coming year, architects surveyed expect an increased pipeline in the next 12 to 24 months.
The retail sector remained upbeat about the general economic outlook. While demand was still weak in the December quarter, a notable proportion of retailers expect a recovery in the next quarter. While some retailers were able to raise prices, retail sector profitability remained weak as cost pressures intensified. The services sector was also feeling optimistic about the general economic conditions and demand outlook ahead despite the current soft demand. The optimism in the retail and services sectors reflects the expectations that many households will likely face reduced mortgage repayments as they roll over to lower mortgage rates over the coming year.
The sentiment in the manufacturing sector also improved, but manufacturers were less optimistic than the other sectors. Manufacturers also reported increased demand in the December quarter, especially when it comes to exports. The lower New Zealand dollar was likely to have supported export sales. However, the combination of intensified costs and reduced pricing power continues to weigh on the profitability of manufacturers.
Cost and pricing indicators point to a continued easing in inflation pressures in the New Zealand economy. The proportion of firms reporting higher costs decreased to 35 percent in the final quarter of 2024. Meanwhile, the proportion of firms raising prices in the December quarter was still historically low at 10 percent. The weak demand continues to reduce capacity pressures, which in turn weighs on inflation pressures in the New Zealand economy. This is reflected by the continued dominance of the lack of sales, which is reported by firms as the primary constraint on their business.
For further information, please contact:
Christina Leung
Deputy Chief Executive (Auckland) & Head of Membership Services
Ph +64 21 992 985 | Email christina.leung@nzier.org.nz
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 10,000 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 NZIER and are available to NZIER members via our website at www.nzier.org.nz.