Big improvement in business confidence defies economic forecasts

Tuesday, 16 January 2024

Poll of 10,000 chief executives took place in the early weeks of the new National-led government.

Businesses have become more confident about future trading conditions despite economists forecasts of slow growth ahead, according to the New Zealand Institute of Economic Research’s quarterly survey of business opinion.

The institute (NZIER) said it was surprising given the “headwinds” facing consumer spending that retailers had swung from being the most downbeat to the most upbeat since its previous survey three months ago.

A net 44% of retailers expected an improvement in general economic conditions over the next six months, versus a net 66% expecting worsening conditions in its previous survey, it reported.

Finance Minister Nicola Willis delivered her mini-budget in December, after the Treasury gave an update on its economic forecasts (video first published December 20, 2023).

That turnaround was “a bit surprising” given there were signs of slowing retail spending as more households were forced to refix mortgage repayments at higher interest rates, NZIER’s principal economist Christina Leung said.

The survey of about 10,000 chief executives took place between November 24 and January 9.

Leung noted that they tended to be more optimistic about the economy when the National Party was in government.

Overall a net 10% of businesses were still expecting a deterioration in general economic conditions over the next six months, when the survey results were seasonally-adjusted.

But that was a sharp improvement on the 49% expecting a deterioration at the time of its previous survey.

A net 6% of firms reported increased activity in the December quarter and a net 5% were expecting their own business would perform better over following three months.

Leung said the survey results pointed to a reasonably strong bounce-back in economic activity, after Stats NZ reported a 0.3% drop in GDP in the September quarter.

That appears in contrast to the Treasury’s and the Reserve Bank’s forecasts of slow growth ahead.

The Treasury forecast in December that the economy would grow by a lacklustre 1.5% annually over the next two years, with secretary Caralee McLiesh saying that would be driven “entirely by population growth”.