By Lucy Craymer
WELLINGTON (Reuters) – New Zealand business confidence weakened in the first quarter due to a number of adverse factors, including uncertainty over the new government’s priorities, a private think tank said on Tuesday.
A clear 25% of companies surveyed expected overall economic conditions to worsen compared to a pessimistic 2% in the previous quarter, the New Zealand Institute of Economic Research’s (NZIER) Quarterly Survey of Business Opinion (QSBO) showed.
On a seasonally adjusted basis, 24% expect economic conditions to worsen, compared to 10% pessimism recorded in the previous period. The production capacity utilization rate fell to 90.2% compared to 91.4% in the previous quarter.
NZIER said the pessimistic mood reflects the difficulties facing businesses, including uncertainty over the new government’s priorities, spending plans and cuts in the public sector and the wider impact of higher interest rates on New Zealand’s economy.
“Weakening demand across sectors has led companies to reduce staff in the first quarter of 2024, with caution around hiring and investment for the months ahead,” NZIER said in its report.
It noted that cost and price indicators suggest inflationary pressures continue to ease in New Zealand, with a smaller proportion of businesses reporting increased costs and higher prices in March.
This will be positive news for the central bank, which is struggling with historically high levels of inflation and in February flagged the potential for a further rate hike if it judged that inflationary pressures were not easing. However, the central bank is expected to keep the interest rate at 5.5% when it meets on Wednesday.
Christina Leung, chief economist at NZIER, added in a press briefing that these data show there is an increased risk that growth will slow sharply rather than a previously expected “soft landing” and this could allow the central bank to cut the interest rate earlier than expected. NZIER forecasts a cut in May 2025.