New Zealand business confidence continued its upward trajectory in February, with the latest ANZ Business Outlook report revealing a four-point rise to +58. However, while optimism about the broader economic environment remains strong, some underlying indicators suggest that the recovery remains uneven.
The February survey showed a divergence between overall sentiment and key performance indicators. While business confidence increased, expected own activity – considered a strong indicator of future GDP – eased slightly, dipping one point to +45. Past own activity, the best GDP predictor, fell three points to -3, indicating that businesses were slightly less busy compared to previous months. Meanwhile, employment indicators remained weak, with past employment holding steady at -7.
A closer look at sectoral performance highlights a mixed picture. Agriculture emerged as the most optimistic sector, leading export and profit expectations. Investment intentions also saw a boost, particularly in agriculture, while retail continued to face headwinds, with activity levels dropping sharply to -16. Construction saw a pullback in both residential and commercial activity, though commercial construction remains in positive territory.
Encouragingly, one-year-ahead inflation expectations eased from 2.7 percent to 2.5 percent, signalling potential relief for businesses concerned about cost pressures. However, cost expectations remained high in manufacturing, which may be linked to rising electricity costs and the weaker New Zealand dollar. Pricing intentions remained stable, with firms on average expecting to raise prices by 1.7 percent over the next three months, while costs were expected to rise by 2.3 percent.
The bank says that overall, the economy appears to be on a recovery path, supported by falling interest rates and stronger-than-expected commodity export prices. However, the extent of this growth will depend on multiple factors, including consumer confidence in borrowing, global economic uncertainty, and persistent skill shortages.
ANZ’s economists note that while businesses are feeling more confident, the bar for improvement is rising. Whether this optimism translates into sustained economic growth remains to be seen, but for now, businesses are betting on better times ahead.
The next ANZ Business Outlook report is due for release on 31 March 2025.
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