New Zealand businesses walked into the middle of the year feeling a little more hopeful than they did at the start of it, but the same survey that recorded the mood lift also carried a warning that costs are climbing again and firms are pushing those costs onto customers. The New Zealand Institute of Economic Research released its Quarterly Survey of Business Opinion on Monday, and it showed confidence recovering while the ground underneath that recovery stayed soft.
A net 12 percent of firms expect general economic conditions to improve over the coming months, up from a net 1 percent in the March quarter survey, on a seasonally adjusted basis. That is a clear jump in sentiment, and much of it appears to trace back to easing global fuel prices. The survey was run between 10 June and 7 July, a stretch that coincided with oil prices coming off the boil after the United States and Iran reached a 60-day arrangement guaranteeing ship passage through the Strait of Hormuz. Fuel had been one of the biggest worries hanging over firms earlier in the year, and its retreat took some of the pressure off.
The catch is that better sentiment about the general outlook has not turned into more actual work. Demand in firms’ own businesses was broadly flat, with only a net 1 percent reporting increased activity in the June quarter once seasonal effects are stripped out. In other words, businesses feel better about where the country is heading, but they are not yet busier themselves. NZIER described the recovery as fragile, and the gap between how firms feel about the economy and how much trading they are doing is a large part of why.
Underneath the headline confidence number, the cost story is heading the wrong way. The proportion of firms reporting higher costs climbed from a net 37 percent in the March survey to more than half in the June quarter. Firms are also getting better at passing those costs on. A net 41 percent said they had already lifted prices, up from a net 22 percent three months earlier, and a net 54 percent intend to raise prices over the next three months. That combination of rising costs and a renewed willingness to pass them through is exactly what the Reserve Bank watches for when it is trying to work out whether inflation is genuinely under control.
NZIER did not soften the point. The institute said the cost and pricing indicators pointed to a lift in inflation pressures during the June quarter, and warned the results suggest a heightened risk of high inflation persisting in the New Zealand economy. That matters because the Reserve Bank lifted the Official Cash Rate to 2.50 percent earlier in July, and a survey showing more firms raising prices gives the bank little reason to relax. The QSBO is one of the longest running and most closely followed business surveys in the country, and the central bank treats it as a useful read on where price pressures are building before the official inflation figures catch up.
The labour market signals were mixed and slightly downbeat. A net 10 percent of firms said they had reduced staff numbers over the June quarter, though the plans for the months ahead were more stable, with only a net 1 percent expecting to cut staff in the September quarter. Investment intentions were cautious rather than gloomy, with a net 3 percent of firms planning to trim spending on buildings, plant and machinery over the coming year. Businesses are holding their nerve on hiring and investment without committing to expansion, which fits a picture of an economy that has stopped sliding but has not started climbing with any real conviction.
The sector detail added some colour. Retailers were among the more optimistic groups, reporting improved orders and sales through the June quarter and expecting demand to hold up. Manufacturers were harder to read, sitting roughly neutral on the general outlook even after reporting stronger domestic and export demand and better profitability during the quarter, because they expect both demand and profitability to slip over the coming months. The split suggests the recovery is uneven, landing on some parts of the economy sooner than others.
The survey lands alongside a run of other numbers that tell a similar story of a cautious, patchy recovery. Retail card spending fell 1.4 percent in June as winter kept shoppers careful, the housing market softened again with both sales and prices slipping, and the BusinessNZ services index only just edged back above the line that separates growth from contraction. None of it points to a sharp downturn, but none of it points to a boom either. Christina Leung, NZIER’s deputy chief executive, leads the institute’s commentary on the survey and has consistently framed the current phase as a slow grind back rather than a rebound.
For business owners and workers, the practical read is straightforward. Confidence about the wider economy has improved, helped by calmer fuel prices, but firms are still fighting rising costs and are increasingly inclined to pass them on. That keeps inflation in the conversation and keeps pressure on the Reserve Bank to hold a firm line. Until demand in firms’ own order books picks up to match the improved mood, the recovery will stay exactly what NZIER called it, fragile.
What are you seeing in your own business or workplace, rising costs, steadier demand, or something else entirely? Share your view 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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