New Zealand business confidence climbed back into positive territory in May, with the closely watched ANZ Business Outlook survey showing sentiment rising 21 points to a net 10 percent of firms expecting better conditions over the year ahead. The lift, reported by RNZ, marks a sharp turnaround from April, when the same measure sat at net 10.6 percent negative as the fallout from conflict in the Middle East rattled importers, exporters and households alike.
The headline number is the one that grabs attention, but economists tend to watch a different line in the survey more closely. Firms’ expectations for their own activity, seen as a better guide to where the economy is actually heading, rose 6 points to a net 26.6 percent positive. That suggests a solid majority of businesses still expect to be busier in a year’s time, even if the mood is far from euphoric.
ANZ chief economist Sharon Zollner struck a cautious note despite the rebound. “These are very uncertain times for businesses,” she said. “Some of the initial shock appears to have worn off, but activity indicators remain considerably lower than before the Middle East conflict broke out.” In other words, May’s bounce looks more like firms catching their breath than a return to confidence as it stood at the start of the year.
The detail of the survey paints a picture of an economy still squeezed on margins. The gap between what businesses expect to pay for their inputs and what they think they can charge customers remains wide, a sign that rising costs are not easily passed on. “The gap between expected costs and expected prices remains wide, implying pressure on profit margins,” Zollner said. With shoppers watching every dollar, many firms are choosing to absorb higher costs rather than risk losing price-sensitive customers.
There was at least one piece of unambiguously good news for the Reserve Bank. Firms’ expectations for inflation a year out eased to 3.63 percent, down from 3.81 percent the month before. That is still well above the central bank’s 1 to 3 percent target band, but the direction of travel matters, and a softening in expectations gives policymakers a little more room to breathe. Pricing intentions across the survey were largely unchanged, another hint that the worst of the recent cost spike may be flattening out.
Not every part of the economy is feeling the improvement equally. Retail and construction firms reported activity going backwards, the two sectors most exposed to nervous consumers and a subdued building pipeline. Agriculture and manufacturing proved more resilient, helped by firm export returns and the recent run of confidence in the dairy sector. Employment intentions, meanwhile, remain below where they sat before the conflict, suggesting hiring will stay cautious even as the broader outlook brightens.
The survey lands against a backdrop of higher fuel prices, which have been the single biggest drag on sentiment in recent months. Disruption to shipping through the Strait of Hormuz has pushed up the cost of petrol and diesel, feeding straight into freight bills, farm budgets and the weekly shop. Newswire has previously reported on how New Zealand has kept the pumps flowing despite the turmoil, but the price at the bowser remains a live worry for households and the businesses that serve them.
Consumers, for their part, are slightly less gloomy than they were. The ANZ-Roy Morgan Consumer Confidence Index rose to 86.5 in May, clawing back some of April’s fall. The number is still a long way below the neutral 100 mark, which means more people remain pessimistic than optimistic about their finances, but the recovery in both business and consumer measures at the same time is the kind of alignment economists like to see.
The timing is notable. The survey was taken in the same window that Finance Minister Nicola Willis delivered Budget 2026, which pulled the forecast return to surplus forward to the 2028/29 year. A government selling a message of fiscal discipline and gradual recovery will take some comfort from firms reporting that the initial shock has begun to fade, even if the Budget itself drew sharp criticism from the opposition.
For all the improvement, the survey is a reminder that the New Zealand economy is still walking a narrow path. Confidence has recovered, but from a low base. Activity expectations are positive, but well down on where they were. Inflation expectations are easing, but remain stubbornly high. And profit margins are under real pressure, with firms caught between rising costs they cannot avoid and customers who cannot afford to pay more. As Zollner’s commentary makes clear, the bounce is real, but the strain underneath it has not gone away.
The full survey is available on the ANZ Business Outlook page, with further coverage from RNZ.
What do you make of the rebound in confidence? Are you seeing it in your own business or household budget, or does it feel disconnected from life on the ground? Share your thoughts in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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