By Lucy Craymer
WELLINGTON (Reuters) -New Zealand’s business confidence in the first quarter weakened as businesses face a range of headwinds including uncertainty over the new government’s priorities, a private think tank said on Tuesday.
A net 25% of firms surveyed expected general business conditions to deteriorate compared with 2% pessimism in the previous quarter, the New Zealand Institute of Economic Research’s (NZIER) quarterly survey of business opinion (QSBO) showed.
On a seasonally adjusted basis, 24% expected business conditions to worsen, versus 10% pessimism recorded in the previous period. The survey’s measure of capacity utilisation fell to 90.2%, from the previous quarter’s 91.4%.
NZIER said the downbeat mood reflects the headwinds businesses face, including uncertainty over the new Government’s priorities, spending plans and cutbacks in the public sector and the broader impact of higher interest rates on New Zealand’s economy.
“Weakened demand across the sectors led firms to reduce staff numbers in the first quarter of 2024, with caution about hiring and investment for the months ahead,” NZIER said in its report.
It noted that cost and pricing indicators suggest that inflation pressures are continuing to ease in New Zealand, with a smaller proportion of businesses reporting increased costs and raising prices in March.
This will be positive news for the central bank, which has battling historically high levels of inflation and in February indicated the potential for a further rate hike if it felt inflation pressures were not easing. However, the central bank is expected to hold the cash rate at 5.5% when it meets on Wednesday.
Christina Leung, Principal Economist at NZIER in a press conference added that this data showed there was an increased risk that growth would slow sharply rather than the previously expected “soft landing” and this could allow for the central bank to cut the cash rate earlier than NZIER’s forecast of a May 2025 cut.