Business sentiment is improving, but actual trading isn’t

Tuesday, 14 January 2025

The NZ Institute of Economic Research’s findings match up with a report on Monday from Retail NZ.

Businesses are continuing to gain confidence that economic conditions will improve, but that is still not being reflected in their actual trading, according to the NZ Institute of Economic Research.

Its latest quarterly survey of business opinion found a net 9% of businesses expected a better economy over the next six months.

That contrasted with the net 4% of firms being downbeat in the previous quarterly survey.

But trading activity continued to suggest weak demand, according to the researcher, with a net 26% of firms reporting a decline in activity in their own business’ activity in the three months to the end of December.

Finance Minister Nicola Willis said the pick-up in sentiment was a sign the economy was moving in the right direction, suggesting also it was helpful in itself.

“When businesses have the confidence to invest and grow, it means more jobs and higher incomes for Kiwis.”

It was the first time confidence had turned positive since June 2021 and only the second time since 2017, she said.

Westpac chief economist Kelly Eckhold said the report confirmed the economy remained pretty flat and had yet to get much of a boost from falling interest rates.

There have been indications retailers will need to wait longer for a pick-up.

“There are some tentative signs of a turnaround, but they are just tentative, which is illustrative of the fact that monetary policy does take a while to turn things around.”

A significant proportion of firms in the building industry told NZIER they had seen a reduction in new orders and output, although they expected a recovery ahead.

Retailers also remained upbeat about the economic outlook, it said.

“While demand was still weak in the December quarter, a notable proportion of retailers expect a recovery in the next quarter.”

A report from Retail NZ on Monday also found retailers continued to be under pressure as last year drew to a close, with Christmas shopping kicking off later in December than usual.

Last week that prompted Briscoes to issue a profit warning.

The services sector was also feeling optimistic about the general economic conditions and demand outlook ahead despite current soft demand, NZIER said.