Inflation concerns resurface
New Zealand’s business confidence has taken a downturn at the start of 2025, retreating from the recent high marks achieved in late 2024.
The first business survey of the year revealed a notable decrease in economic optimism and future activity expectations among firms.
Subtle shifts in business confidence levels
Easing from highs
The general sentiment about the economy dropped to 54.3 from a previous 62.3, and firms’ own activity expectations decreased to 45.8 from 50.3.
Despite these declines, these figures remain relatively robust, reflecting a natural regression from unusually high levels witnessed in December.
Sectoral variations
January’s business confidence results varied across sectors.
The services sector experienced a sharp decline in confidence, contrasting with continued positivity in retail, manufacturing, and construction – the latter now ranking as the most optimistic sector, likely due to its sensitivity to interest rate cycles, Westpac NZ reported.
Inflationary pressures on the rise
Increasing costs and pricing intentions
The survey also indicated rising inflation metrics.
Expected inflation for the coming year edged up to 2.67%, and firms’ pricing intentions have climbed in recent months. Additionally, an increasing number of firms anticipate higher costs, partly influenced by the depreciating New Zealand dollar.
CPI and RBNZ outlook
With the December quarter consumer price index (CPI) maintaining annual inflation at 2.2%, slightly above the Reserve Bank’s target midpoint, there is growing caution about the inflationary outlook.
Last year’s global disinflation helped temper overall inflation rates in New Zealand, but this effect may diminish in the coming year.
Cautious approach to monetary policy
Given the mixed signals from various economic indicators, the Reserve Bank is expected to proceed with caution. As the OCR moves towards what is considered a “neutral” level, the justification for maintaining “easy” monetary conditions appears less clear, Westpac NZ reported.
For more detailed insights, visit www.westpac.co.nz/economics.
