Key Facts

  • A recent survey from the New Zealand Institute of Economic Research (NZIER) reveals a decrease in economic confidence and inflation indicators among 10,000 business leaders.
  • A net 24% of the surveyed business leaders predict an economic decline in the coming months.
  • A reduction in business activity was also noted, with 23% reporting a drop in activity during the first quarter.
  • However, this drop in business activity is favorable in combating inflation, with fewer businesses reporting higher costs or increased pricing.
  • Some businesses in the construction sector even reduced their rates.
  • A drop in labour market conditions might impact retail spending, with weaker demand leading to staffing cuts.
  • Despite the survey results, many economists believe that inflation is not falling faster than predicted.
  • The RBNZ’s monetary policy committee is expected to maintain the official cash rate at 5.50% until 2025.

Article Summary

The NZIER’s quarterly survey shows a significant drop in confidence among business leaders who anticipate worsening economic conditions in the near future. About 24% of the survey respondents expected the economy to shrink, with 23% experiencing reduced activity in the first quarter of the year. Although this seems like a negative outlook for businesses, it also indicates a trend towards eased inflation pressures, with fewer businesses reporting increased costs and prices.

In fact, the survey noted that some participants, particularly in the construction industry, even lowered their rates. As per Christina Leung from NZIER, this trend points towards inflation moderating and returning to target levels later in the year. However, there is also an indication of firms cutting capital investments and staff numbers due to weaker demand across sectors. This might prompt more cautious behavior in the household sector, affecting retail spending.

A contrary perspective suggests that although the survey indicates a disinflationary trend, inflation is not falling at a faster-than-expected rate. An estimated 35% of firms increased their selling prices in the first three months, and 33% expect to do so in the next quarter. The Reserve Bank, absorbed in its policy decision for the upcoming April review, expects to keep the official cash rate at 5.50% until 2025.

While these findings might send mixed signals to central bank policymakers, Kiwibank’s economics team views these developments positively, with the cooling demand and decline in firms looking to raise prices being considered beneficial for the inflation outlook.

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