Retail, hospitality and construction sectors remain wary of potential headwinds
Business sentiment is improving in New Zealand, but there are caveats.
"What we're hearing from some businesses, especially in the retail, construction and hospitality sectors, is that they're still facing challenges; there's still some soft demand," Satish Ranchhod (pictured), senior economist at Westpac NZ, told New Zealand Adviser. "Some of the downturn that they saw last year has eased. But there's still soft demand. It's just not getting worse."
The bank's February business outlook survey found that general business sentiment has risen to 58.4, up from 54.4.
"The general message remains that current conditions are tough, but firms are hopeful about the year ahead," the report said.
In fact, New Zealand has been plagued with conflicting market forces in recent months, including rising unemployment rates and higher costs of living. At the same time, inflationary pressures appear to be subsiding and the country's official cash rate (OCR) was reduced by 50 basis points earlier this month. The market was flooded with even more optimism after the Reserve Bank of New Zealand (RBNZ) forecasted additional rate reductions throughout 2025.
It's little surprise then that, "companies are more upbeat that the economy is going to improve," Ranchhod said.
But, the economist added, "It's a gradual recovery. It won't be evident until the second half. So some companies are still reluctant with capital expenditures and hiring."
In particular, retail, hospitality and construction are wary of potential headwinds, Ranchhod said. While retail spending is on the rise in New Zealand, according to a separate report recently released by Westpac NZ, many retailers are cautious about investing in commercial property spaces, or further cap ex expenditures, until the spending can be more widely felt throughout the economy.
Meanwhile, the demand for office space remains mixed.
"A lot of companies are looking for the right space, the right fit, with so many hybrid set-ups," Ranchhod said. "It's very split. The grade-A premium properties are doing well. But the older properties are facing challenges."
He added that in Auckland, the nation's largest market, "We're seeing a lot of market resets, a lot of redevelopments to make it more appealing to potential new tenants."
