Business Sentiment Rebounds as Hiring and Investment Plans Rise

Business optimism has significantly increased, despite a slower growth forecast. The latest Quarterly Business Survey from the Institute of Economic Research (NZIER) for the three months ending December 2023 indicates that a net 39 percent of surveyed firms expect economic conditions to improve in the near future, a notable rise from 17 percent in the previous December survey.

According to Christina Leung, principal economist at NZIER, this shift reflects a recovery in demand, largely attributed to lower interest rates finally taking effect. While businesses continue to cite weak sales as a primary constraint, the situation is improving, with only 3 percent reporting lower sales this quarter.

Investment and Hiring Plans Surge

The survey’s findings suggest a positive outlook for growth in the upcoming quarter. A net 23 percent of firms anticipate an increase in their own business activity, up from 10 percent in the previous quarter. Leung noted that there is a growing confidence among businesses to invest in plants and machinery, as well as to expand their workforce. “Firms increased staff numbers and are feeling more positive about hiring in the next quarter,” she stated.

Despite this optimistic trend, challenges remain, particularly in the manufacturing and construction sectors where companies are struggling to find skilled labor. This potential shortage could pose difficulties for future growth.

Inflation and Economic Growth Projections

Inflationary pressures appear to be stabilizing, with fewer companies expecting higher costs. The survey indicates that businesses are less likely to raise prices, suggesting a gradual decline in inflation towards the Reserve Bank’s target band of 1-3 percent. Leung commented on the overall economic recovery, noting that while growth is expected, it may be slower than previously anticipated, with annual growth projected at 1.4 percent.

“As demand begins to recover but inflation remains contained, we do not expect any further cuts to the Official Cash Rate (OCR) in this monetary policy cycle,” Leung added. The OCR is forecasted to reach a low of 2.25 percent until the Reserve Bank starts increasing it in the second half of 2026.

Overall, the manufacturing sector emerged as the most optimistic among respondents, closely followed by service industries, indicating a broad-based recovery across various sectors. The increasing confidence in business sentiment highlights a potential turnaround in the economic landscape as firms navigate the challenges ahead.