Retailers are the most optimistic they’ve been in recent times, with business confidence lifting significantly in the first quarter of 2025, according to the latest Quarterly Survey of Business Opinion.
The survey, released today by the New Zealand Institute of Economic Research (NZIER), shows a net 23 percent of firms expect general economic conditions to improve over the coming months — up sharply from just 9 percent in the previous quarter.
While sentiment is clearly rebounding, the report points to a more cautious reality on the ground.
A net 21 percent of firms reported a decline in their own trading activity in the March quarter, continuing a trend of weak demand. Despite expectations of brighter days ahead, many businesses are still hesitant to hire or invest. A net 17 percent reduced staff in the last quarter, and investment in buildings and machinery is also being wound back.
“Firms are clearly hopeful, but they’re still waiting for demand to catch up before committing to growth,” says NZIER Deputy Chief Executive Christina Leung.
The building sector, previously the most positive in the survey, has seen confidence fall away. Only a net six percent of construction-related firms now expect an improvement in economic conditions, down from 29 percent in the December quarter. Reduced new orders and output are dampening optimism, with architects also reporting a softer construction pipeline ahead — particularly for Government projects.
Meanwhile, the retail sector has overtaken construction as the most upbeat, with a net 24 percent expecting an improvement in the coming months. This is despite falling sales and new orders in the March quarter. Retailers are facing intensified cost pressures, largely due to the lower New Zealand dollar increasing the cost of imports. However, many have still managed to lift prices, possibly in anticipation of improving demand.
The services sector is also cautiously optimistic. While demand remains soft and cost pressures are growing, expectations of falling interest rates may be buoying sentiment. In contrast, the manufacturing sector is more reserved. Weak domestic demand, likely tied to reduced construction activity, continues to hurt profitability — even as cost pressures ease slightly.
Cost inflation has picked up again, particularly in retail, as the weak New Zealand dollar bites into margins. Yet, pricing power remains constrained — only eight percent of businesses increased prices in the March quarter.
Capacity utilisation fell in both construction and manufacturing, reinforcing the message that weak demand, not supply constraints, is the economy’s biggest hurdle right now.
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