NZIER’s QSBO shows a cut-back in optimism amongst businesses, Quarterly Survey of Business Opinion - October 2025

New Zealand Institute of Economic Research (Inc) 
Media release, 7 October 2025

NZIER Quarterly Survey of Business Opinion 
Embargoed until 10 am 7 October 2025

The latest NZIER Quarterly Survey of Business Opinion (QSBO) showed a drop in business confidence in the September quarter. A net 15 percent of firms expect an improvement in general economic conditions over the coming months on a seasonally adjusted basis. While the sentiment was positive, this was a decline from the net 26 percent expecting an improvement in the June quarter.

Meanwhile, firms’ own trading activity showed a net 14 percent of firms reported a decline in activity in their own business in the September quarter, but a net 9 percent of firms expect improved demand in the next quarter. A significant gap remains between firms’ experienced demand, which is still weak, and their expectations of improved demand ahead. For the past year, actual activity has fallen short of earlier expectations of a recovery.

Firms’ hiring and investment intentions have also reduced. A net 23 percent of firms cut staff headcount in the September quarter. Regarding investment, a net 13 percent of firms intend to reduce investment in plant and machinery, while a net 20 percent intend to reduce investment in buildings over the coming year. The continued disappointing nature of the recovery in demand, combined with the volatile global backdrop, is driving heightened caution among firms.

Weak demand continues to be the key concern for firms, with a net 63 percent of firms reporting a lack of sales as the primary constraint on their business. In contrast, a net 3 percent reported finding labour as the primary constraint. This is consistent with the continued ease in finding labour reported by firms, particularly when it comes to finding unskilled labour. These results point to excess capacity in the New Zealand labour market.

The manufacturing sector feels the least optimistic

Manufacturing is the least optimistic across the sectors surveyed, with only a net 3 percent of the manufacturers surveyed expecting general economic conditions to improve. Although domestic demand improved, export demand was still in contraction. Profitability in the manufacturing sector deteriorated in the September quarter, despite many manufacturers being able to raise prices to pass on higher costs. The weaker global growth outlook, arising from heightened global uncertainties, presents a key headwind for the manufacturing sector, given the influence of global investment on manufacturing demand.

The building sector remains cautiously optimistic. Construction demand remains weak, with the building sector firms reporting declines in new orders and output in the September quarter. The soft construction demand is also reflected in the measure of architects’ work in their own office, which points to a flat pipeline of housing construction work and a reduced pipeline of commercial and Government construction work over the coming year. These are broadly consistent with other indicators, such as the Stats NZ building consent issuance, which suggest a patchy recovery in near-term construction demand. 

While there was a drop in confidence, retailers remained the most optimistic sector surveyed in the September quarter, despite continued weakness in new orders and sales. Cost pressures in the retail sector remain intense, but the proportion of retailers able to raise prices eased. In responding to the intense cost pressures and weak demand, a substantial proportion of retailers also reduced staff numbers in the September quarter.

Similar to the retail sector, a stark contrast continued between expectations of an improved outlook and weak demand reported by services sector firms. The optimism is likely to be supported by the widespread expectations of lower interest rates over the coming year. With over 40 percent of mortgages due for repricing over the coming six months, we expect the reduction in interest rates to date will continue to support a recovery in retail and services demand over the coming year.

Inflation pressures picked up in the September quarter

Cost and pricing indicators suggest a pick-up in inflation pressures in the September quarter. Alongside a slight increase in cost pressures, a net 11 percent of firms reported that they raised prices in the September quarter. This was a turnaround from a net 1 percent who reduced prices in the June quarter. However, within that, the building sector’s pricing power weakened, with a net 20 percent of building sector firms reporting that they had cut their prices.

We expect annual CPI inflation to rise just above 3 percent over the coming quarters. However, continued excess capacity in the New Zealand economy should drive inflation back towards the RBNZ’s inflation target mid-point of 2 percent over the coming year. We continue to forecast two further 25-basis-point OCR cuts from the RBNZ at the upcoming meetings in October and November.

For further information, please contact:
Christina Leung
Deputy Chief Executive (Auckland) & Head of Membership Services 
Ph +64 21 992 985 | Email christina.leung@nzier.org.nz 

Background
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 10,000 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 NZIER and are available to NZIER members via our website at www.nzier.org.nz.