Business sentiment improves—will global turmoil undercut it?
New Zealand's economic outlook showed tentative signs of recovery in the latest Quarterly Survey of Business Opinion (QSBO) for Q1 2025, though analysts warn the results may already be outdated amid global economic turmoil.
The survey, conducted by NZIER and published by ASB Economics, captured business sentiment prior to US President Donald Trump’s April 3 tariff announcement, which has since triggered significant volatility in global financial markets.
As such, while business confidence rose to a net 23% (from 9% in Q4 2024), the findings may not reflect the growing risks from escalating trade tensions.
Despite the improvement in sentiment, underlying indicators revealed continued weakness. Actual domestic trading activity remained firmly in contraction at -21%, while employment levels stagnated. Hiring expectations for the next quarter declined to -2%, with a large portion of firms still facing weak demand rather than capacity or labor constraints.
Sector-wise, retail and services remained the most optimistic, while confidence in the building sector dropped sharply, driven by reduced demand and rising costs. Architects also reported fewer projects, signaling a potentially weaker construction pipeline.
Inflationary pressures appear contained. Only a net 8% of firms increased prices in Q1, and expectations for future price rises dropped markedly. However, cost pressures surged, contributing to ongoing margin compression. Profitability remains subdued, with past and expected profitability both in negative territory.
ASB expects the Reserve Bank of New Zealand (RBNZ) to cut the official cash rate (OCR) by 25 basis points to 3.50%, with further cuts likely. With mounting global risks and fragile domestic conditions, economists now consider a sub-3% OCR by year-end increasingly probable.
The mixed Q1 results highlight a cautious business climate facing new uncertainties on the global stage.
What’s next for interest rates as inflation cools but demand stays weak? Let us know what you think
