NZ Firms Scale Back Investment Amid Tightening Credit Conditions
New Zealand businesses are becoming increasingly cautious about investing due to tighter credit conditions and higher borrowing costs. According to research from NZIER, firms are prioritizing liquidity and balance sheet resilience over committing to long-term capital projects.
The report found that borrowing costs have climbed sharply since February 2021, with businesses paying close to 8% to borrow by 2023-24, the steepest rate in over a decade. Although yields have eased from their April 2024 peak of 7.9%, they remain well above pre-COVID-19 levels.
The Reserve Bank's (RBNZ) recent interest rate hikes are unlikely to ease this pressure, with the official cash rate raised to 2.75% in September and more increases possible this year. The RBNZ's Credit Conditions Survey also found weaker credit availability affecting smaller firms since 2022.
Stats NZ data shows that current assets have grown from 27% to 31% of total assets between 2018 and 2024, which may indicate greater financial caution. Firms are holding more cash and less committed capital, with investment in fixed tangible assets growing but at a slower pace than overall asset bases.