April 07, 2020

New Zealand Institute of Economic Research (Inc)
Media release, 7 April 2020
NZIER Quarterly Survey of Business Opinion
Embargoed until 10am 7 April 2020

Business confidence plummets in NZIER’s QSBO

The latest NZIER Quarterly Survey of Business Opinion (QSBO) is being issued in extraordinary times. The result captures responses received up to 20 March 2020 – just prior to the announcement by the Government of the Alert Level 4 lockdown across the country. It thus gives us at least a partial glimpse into how firms think COVID-19 will impact them and the economy.

The QSBO shows a sharp decline in business confidence, with a net 67 percent of businesses expecting a deterioration in general economic conditions.

When it comes to demand in their own business, the weakness was most apparent in firms’ expectations for the next quarter. A net 11 percent reported weaker demand in their own business in the March quarter, but a net 13 percent expected weaker demand in the next quarter – a marked turnaround from the 5 percent of businesses who had expected an improvement in demand in the previous quarter.

This was a common theme across many of the activity indicators including hiring and output. The much weaker tone of expectations for the next quarter relative to what firms experienced in the March quarter suggests that whilst activity held up reasonably well in the weeks leading up to the lockdown businesses were looking to pare back operations in anticipation of weaker demand ahead.

Different effects for the sectors as the weeks progressed

The majority of responses were received between the 4th and the 11th of March. An analysis of the daily responses on the measure of firms’ own trading activity found that, unsurprisingly, the weekly average of firms’ own trading activity fell as the weeks went on. The largest decline in firms’ own trading activity occurred in the final week before the lockdown commenced. This reflects the effects of the rapidly deteriorating situation given the acceleration in the number of confirmed COVID-19 cases. An extrapolation of the pattern of responses in DTA to new number of confirmed cases each day suggests that almost 70 percent of businesses would likely report a deterioration in demand towards the end of March.

However, there was difference in the pattern of responses across the sectors over the three weeks the responses were collected. Unsurprisingly, services sector firms reported a weakening in own trading activity as the weeks progressed. The impact of the enforcement of strict border controls and encouragement of physical distancing behaviour has been most apparent in reduced demand in tourism and hospitality-related sectors. Retailers also reported a sharp decline in demand in the week before the lockdown. In contrast, manufacturers and builders saw an improvement in demand over the weeks leading up to the lockdown.

Services sector particularly pessimistic

Although the pessimism was broad-based across the sectors, the services sector was particularly pessimistic. A net 76 percent of services sector firms expect weaker economic conditions over the coming months. With firms in the services sector pessimistic about the outlook for demand ahead, a net 19 percent are looking to cut staff numbers.

Manufacturers were also downbeat, but there was a divergence between weaker domestic demand and stronger export demand in the weeks leading up to the lockdown in March. But a net 10 percent of manufacturers expect export demand to deteriorate in the June quarter. With the majority of the global economy shut down with a range of measures aimed at curbing the number of COVID-19 infections, economic activity has dropped sharply and there are widespread expectations of a global recession. This will have a negative impact on global demand for our manufactured exports.

Prospects for the building sector are mixed, with the measure of activity in architects’ own office pointing to a soft pipeline of residential and commercial construction, but a still-solid pipeline of Government construction work. The Government is expected to play a greater role in construction work as private investment weakens and has indicated its intention to accelerate any ‘shovel-ready’ infrastructure projects that can start within the next 180 days.

There has been more discounting in the retail sector as demand weakened. The impact of the lockdown will be severe for most retailers which are not deemed essential, given it largely removes any opportunity for sales revenue.

Firms pessimistic about hiring and investment

The high degree of uncertainty is driving firms’ decisions to reduce staff numbers and investment in buildings and plant and machinery. A net 16 percent of firms plan to reduce headcount in the next quarter. Investment plans for buildings and plant and machinery have also been curtailed, with a net 15 percent and 7 percent planning to reduce investment in these areas, respectively.

Figure 1 Retailers and services sector firms have borne the brunt of weaker demand

Source: NZIER

For further information please contact:
Christina Leung
Principal Economist & Head of Membership Services
Ph +64 21 992 985 | Email christina.leung@nzier.org.nz


The New Zealand Institute of Economic Research has conducted its Quarterly Survey of Business Opinion since 1961. It is New Zealand’s longest-running business opinion survey. Each quarter we ask around 4,300 firms about whether business conditions will deteriorate, stay the same, or improve. The responses yield information about business trends much faster than official statistics and act as valuable leading indicators about the future state of the New Zealand economy. Long term series derived from the survey are held at the NZIER and are available to NZIER members via our website at www.nzier.org.nz.