New Zealand Business Confidence Jumps Despite Weak Activity and Cost Pressures

New Zealand business confidence saw a significant boost in the September quarter, with a net 40% of firms anticipating better economic conditions, a sharp rise from 14% in the previous quarter. This surge in optimism, however, did not translate into immediate improvements in actual business activity. A net 1% decline in domestic trading activity was reported, though expectations for future activity improved modestly from 11% to 15%. The NZIER attributed this rise in confidence to factors like increased investment intentions and hiring plans, despite ongoing challenges such as weak demand and rising fuel prices.

Forward-looking indicators showed a shift from caution to more proactive investment plans. Firms indicated intentions to invest more in buildings, plant, and machinery, with hiring expectations also improving despite a net 5% of businesses reducing staff in the quarter. The survey highlighted varying performance across sectors, with retailers being particularly optimistic about the economic outlook, even as they reported weaker orders and sales. Builders noted stronger demand, while manufacturers experienced increased domestic and export demand but faced declining profitability due to elevated costs and reduced pricing power.

Inflation-related pressures eased slightly, with the proportion of firms reporting higher costs dropping from 54% to 47%, and fewer firms raising selling prices due to soft demand. This moderation suggests a reduced risk of higher fuel prices feeding into broader inflation. However, the survey also pointed out that skilled workers were becoming harder to find, indicating potential future labor market constraints. Overall, the data suggests a growing confidence in the economic recovery, though realized activity has yet to fully catch up with optimistic expectations.