NZIER’s QSBO shows real activity remaining weak despite improved confidence, Quarterly Survey of Business Opinion - July 2025

New Zealand Institute of Economic Research (Inc) 
Media release, 1 July 2025

NZIER Quarterly Survey of Business Opinion 
Embargoed until 10 am 1 July 2025

NZIER’s QSBO shows real activity remaining weak despite improved confidence
The latest NZIER Quarterly Survey of Business Opinion (QSBO) showed a continued increase in business confidence in the June quarter. A net 27 percent of firms expect an improvement in general economic conditions over the coming months on a seasonally adjusted basis, which was a further lift from the net 23 percent in the March quarter.

We continued to see the divergence between firms experiencing weak demand and firms expecting a recovery in demand. The measure of firms’ own trading activity showed a net 23 percent of firms reported reduced activity in their own business in the June quarter. In contrast, a net 18 percent of firms expect improved demand in the next quarter. Although the sharp interest rate cuts since August last year have boosted confidence, the effects of lower interest rates remain slow to flow through to a lift in real activity.

With demand remaining soft, firms continue to be cautious about hiring. A net 12 percent of firms reduced staff numbers in the June quarter, although a net 4 percent expect to hire in the next quarter. When it comes to investment plans for the coming year. A net 1 percent of firms intend to reduce investment in buildings, but a net 8 percent intend to increase investment in plant and machinery. While there is still some degree of caution among firms, there appear to be tentative signs of a pick-up in firms’ appetite to invest.

Building sector firms remain cautious

The building sector was the least upbeat sector surveyed. Only a net 3 percent of building sector firms expect general economic conditions to improve in the coming months, a further drop from the 6 percent of building sector firms feeling upbeat in the March quarter.

This cautious mood in the building sector likely reflects continued weak construction demand. A substantial proportion of building sector firms reported reduced new orders and output over the June quarter. The measure of architects’ work in their own office shows a reduced construction pipeline across housing, commercial and Government work over the coming year. Beyond that, architects expect a reduced pipeline of commercial and Government work over the next 12 to 24 months. Only a small proportion of architects expect a recovery in housing construction work over this longer-term timeframe. 

Meanwhile, the retail sector remains the most optimistic, with a net 40 percent of retailers surveyed expecting better general economic conditions over the coming months. This contrasts with the decline in new orders and sales in the June quarter. Cost pressures in the sector eased slightly, and the proportion of retailers able to raise prices increased. Despite the soft demand, retailers are holding on to their expectations of a recovery.

Services sector firms are also feeling more positive about the general economic outlook ahead, despite continued weak demand. Again, this optimism is likely to be supported by the widespread expectations of lower interest rates over the coming year. Despite this optimism, the services sector is still grappling with weak profitability as soft demand continues to weigh on the sector’s pricing power. 

Confidence in the manufacturing sector also lifted. However, manufacturers reported reduced export demand in the June quarter and expect a decline in export demand in the coming quarter. The recent global developments, particularly the heightened uncertainty over US tariffs, are likely to have weighed on demand for commodities that are more exposed to investment and industrial activities. Despite soft demand, profitability in the manufacturing sector improved in the June quarter, driven by an easing of cost pressures and increased pricing power. 

Inflation pressures ease on the back of reduced pricing pressures 

Cost and pricing indicators suggest an easing in inflation pressures in the June quarter. Cost pressures eased slightly, while a net 1 percent of firms reported that they reduced prices in the June quarter. This reduced pricing pressure was particularly apparent in the building sector, with a third of firms reporting that they had cut their prices in the June quarter.

The continued softness in demand continues to drive a reduction in capacity pressures in the New Zealand economy, which is helping to contain inflation. The easing of capacity pressures is reflected in the continued dominance of firms reporting a lack of sales as the primary constraint on their business, as opposed to those reporting finding labour as the primary constraint.

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.