QSBO shows improved business confidence and activity - Quarterly Survey of Business Opinion, January 2024

New Zealand Institute of Economic Research (Inc) 
Media release, 16 January 2024
NZIER Quarterly Survey of Business Opinion 

Embargoed until 10 am 16 January 2024

The latest NZIER Quarterly Survey of Business Opinion (QSBO) showed a sharp pick-up in business confidence over the final quarter of 2023. While a net 10 percent of firms are still expecting a worsening in general economic conditions over the coming months on a seasonally adjusted basis, this is a significant decrease from the net 49 percent in the previous quarter and the net 79 percent a year ago.

This significant improvement in business confidence is amidst increased demand, with a net 6 percent of firms reporting an increase in their own trading activity in the December 2023 quarter on a seasonally adjusted basis. A similar proportion of firms also feel positive about demand in the next quarter. 

Finding labour is now easier for businesses

The December quarter survey continued to show a sharp easing in labour shortages, with firms reporting that it is easier to find both skilled and unskilled labour. This result presents a significant shift from a year ago when shortages for both types of labour were very acute. Since the reopening of international borders, the strong increase in net migration inflows has helped alleviate labour shortages in New Zealand as firms can now bring in workers from overseas. 

This easing in labour shortages is also reflected in the result of the primary constraint for business question. The December quarter survey showed a further decline in the proportion of firms, noting finding labour as a primary constraint compared to the previous quarter. Meanwhile, over half of firms surveyed reported sales being the primary constraint on their businesses in the December quarter. Key concerns for businesses have shifted from supply-side factors to demand-side factors.

Cost and pricing pressures easing

Inflation indicators point to easing inflation pressures in the New Zealand economy. The proportion of firms reporting higher costs and the proportion of firms who have increased their prices both declined in the December 2023 quarter. The results are also significantly lower than those seen a year ago. The easing in inflation pressures was most apparent amongst building and service businesses. Overall, these developments suggest a continued moderation in inflation in the New Zealand economy over the coming year.

The retail sector has become the most optimistic

Regarding business sentiment, the most significant development for the December quarter was from the retail sector. A net 44 percent of the retailers surveyed expect an improvement in general economic conditions. This is a significant turnaround from the September quarter, in which the retail sector was the most downbeat sector. While this shift is surprising given the signs of a slowing in retail spending as many households now face significantly higher mortgage repayments, the strong migration-led population growth and a recovery in tourism are likely to support demand in the retail sector. Despite the turnaround in retailers’ sentiment, profitability continues to be squeezed by intense cost pressures facing the sector.

Building sector firms are also feeling more optimistic about general economic conditions over the coming months and have reported a recovery in demand in the December quarter. The architects’ measure of work in their own office also points to a pick-up in commercial construction demand beyond 2024. While cost pressures have eased for building sector firms, their pricing power has also reduced considerably, which continues to weigh on their profit margins. These results suggest a continued slowing in construction cost inflation over the coming year. 

In contrast, the manufacturing and services sectors are still feeling downbeat, but much less so compared to the previous quarter and a year ago. For the manufacturing sector, both cost and pricing pressures increased. Meanwhile, both cost and pricing pressures have eased for the services sector. Nonetheless, both sectors show signs of a recovery in demand. 

Businesses are feeling more positive about hiring and investment

With improved business confidence, firms are feeling more positive about hiring overall, with the manufacturing sector being the exception. Regarding investment intentions, firms remain slightly cautious about investing in buildings but slightly positive about investing in plant and machinery. The history of the QSBO shows that firms tend to hold off on committing to investment ahead of general elections, given uncertainty over the outcome. With a new Government formed in late November 2023, it appears that firms are now looking to invest. 

For further information, please contact:
Christina Leung
Principal Economist & 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 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.