The retail sector has replaced the building industry as the most optimistic part of the economy. Photo: Yiting Lin / RNZ
- Business confidence improves despite weak trading environment
- Net 23 percent expect economic improvement in March quarter vs +9 pct in December
- Businesses report soft activity, shed staff, facing higher costs
- Uncertainty and current softness weighs on hiring and investment
Business sentiment improved in the three months ended March despite having weaker sales, shedding staff and increased inflation pressures.
The Institute of Economic Research's closely followed quarterly business survey showed a net 23 percent of respondents think economic conditions will get better in coming months, compared to a net 9 percent in the December survey.
Firms reported a decline in their own trading, with a net 21 percent reporting a fall in their trading in the past quarter, from 24 percent decline in the previous survey.
The weakness was expected to ease in the coming quarter, with a net 12 percent forecasting a lift in their own business from 9 percent in the previous quarter.
NZIER principal economist Christina Leung said businesses were showing cautious optimism, but were waiting for more evidence the economy was definitely recovering.
"Despite the optimism about the look ahead, the continued weakness in demand is still driving caution when it comes to hiring and investment."
Leung said the survey was taken between February and the end of March, before the announcement of US tariffs and subsequent market turmoil.
"Businesses hate uncertainty and it's likely the tariffs will negatively impact sentiment."
Cost pressures increase
Firms reported rising cost pressures, with 50 percent facing increased costs and 42 percent expecting further rises.
Leung said the weaker New Zealand dollar likely contributed to that, and the low number of respondents expecting to raise their prices suggested weak demand was holding them back.
She said the retail sector had replaced the building industry as the most optimistic part of the economy.
Leung said she expected further interest rate cuts by the Reserve Bank, to a low of 3.25 percent.
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