In Q1, New Zealand’s business community signaled a stark downturn in confidence, with NZIER business confidence index plunging from -9.9 to -23.7 . This dramatic drop is accompanied by reversal in firms’ trading activity expectations for the coming quarterly, from 6.6 to -11.5, as well as retrospective decline in past three months’ trading activity from 6.7 to -23.2.
NZIER attributes this downturn to the effect of heightened interest rates, which appear to be fulfilling their role in tempering demand to alleviate inflationary pressures. Moreover, the looming uncertainty surrounding the new Government’s fiscal strategies, particularly in terms of spending adjustments and cutbacks in the public sector, is exacerbating business caution.
Detailed further illuminates the current economic challenges, with a net 11% of firms having reduced their workforce in the March quarter, albeit with slightly positive hiring intentions moving forward. Investment intentions are also on the downturn, with a net 14% of businesses intending to cut back on plant and machinery investment, and a net 8% planning to curtail investment in buildings over the next year.
