The conflict in the Middle East has weighed heavily on New Zealand’s business outlook, with confidence falling sharply in the latest NZIER Quarterly Survey of Business Opinion.
The survey highlights a rapid reversal in sentiment and growing caution among businesses. For the March quarter, only a net 1% of firms expected improved economic conditions in the months ahead, a steep drop from a net 39% in the December quarter.
New Zealand Institute of Economic Research (NZIER) deputy chief executive Christina Leung noted that confidence weakened progressively throughout the survey period, which ran from March 6 to April 10.
“Although firms’ domestic trading activity remained stable in the March quarter, the ongoing US-Israel war against Iran poses a risk to the fragile recovery that had been taking shape in the New Zealand economy late last year,” Leung said.
“Firms’ own trading activity was flat on a seasonally adjusted basis, which is a slight improvement from the net 3 percent reporting a decline in activity in their own business in the previous quarter.”
The building sector emerged as the most pessimistic, reflecting its heavy exposure to ongoing global supply chain disruptions and elevated transport costs.
Leung described the situation as a “perfect storm” for the industry, noting that persistently weak construction demand is squeezing margins and limiting firms’ ability to pass higher input costs on to customers through price increases.
A net 28% of firms are now pessimistic, as rising costs continue to bite and construction demand weakens further.
Manufacturing stands out as the most optimistic sector, with a net 34% of manufacturers expecting general economic conditions to improve in the months ahead, signalling a degree of resilience compared with other parts of the economy.
“This optimism appears to have been supported in particular by stronger export demand in the March quarter, despite manufacturers reporting an easing in both cost and pricing pressures over the quarter, manufacturing sector profitability deteriorated,” Leung said.
The retail sector is also maintaining a cautiously positive outlook, with firms expecting steadier demand in the months ahead. In the March quarter, both new orders and sales showed improvement.
Leung said cost and pricing indicators suggest inflation in New Zealand remains broadly contained, despite recent spikes in fuel prices. However, she noted that the uncertainty around how long the conflict will continue to disrupt global oil and gas supply chains and keep pressure on energy prices.