But businesses stay optimistic as warning signs resurface
New Zealand business confidence softened in February, although it remains elevated by historical standards, according to recent analysis by Westpac.
In its First Impressions: NZ business confidence, February 2026 report, senior economist Michael Gordon said the latest ANZ Business Outlook survey showed headline confidence falling to 59.2 in February from 64.1 in January. Despite the decline, sentiment remains at comparatively high levels following a strong run through 2025.
Westpac noted that “the recent signs of improvement in the economy have also come with the spectre of inflation and higher interest rates.” According to the report, developments early in 2026 have raised concerns that inflation pressures are re-emerging and that the next move in interest rates is likely to be upwards.
Inflation curbing business confidence
Firms’ expectations for their own trading activity edged higher to 52.6 from 51.6. However, more detailed indicators covering employment, investment, and profits were generally softer. A net 23.4% of firms reported that activity was higher than the same month a year earlier, down from 26.2% previously, although Westpac said the measure has largely retained gains seen in late 2025.
Perceptions of credit availability have deteriorated sharply over the past two months and are now at their lowest level since July 2024. Westpac linked this shift to the November Monetary Policy Statement from the Reserve Bank of New Zealand, which signalled that Official Cash Rate cuts were likely at an end. That guidance was followed by a rise in term interest rates as markets began pricing in the possibility of rate hikes.
Inflation indicators in the survey were mixed. Expectations for inflation over the coming year rose to 2.93% from 2.77%, the highest reading since July 2024. Westpac said this measure often reacts to the latest quarterly inflation data, which most recently showed a 3.1% year-on-year increase, placing inflation outside the central bank’s target range. By contrast, firms’ pricing intentions eased to 53.3 from 56.5, albeit after reaching a three-year high in January.
Expected wage growth for the year ahead lifted to 3.0% from 2.8%, while reported wage growth over the past year slowed to 2.5%. Westpac said any sustained pick-up in wage pressures would be closely watched by policymakers, given expectations of ongoing slack in the labour market.
Broader economic trends
Recent economic data highlight a complex environment for businesses. New Zealand’s annual inflation rate rose to 3.1% in the December 2025 quarter, slightly above the Reserve Bank’s 1%–3% target range, with housing and food contributing significantly to the increase.
At the same time, retail spending data for late 2025 showed consumer demand holding up better than expected, with inflation-adjusted sales rising 0.9% in the fourth quarter, a gain economists interpreted as evidence of sustained household consumption despite higher borrowing costs.
From the policy side, the Reserve Bank’s OCR has remained unchanged at 2.25% in early 2026, reflecting a cautious stance amid persistent inflation and elevated unemployment. Those conditions reflect broader uncertainty about how quickly the labour market and consumer demand will strengthen this year.
Longer-term projections also suggest mixed momentum. Westpac’s October 2025 economic overview projected modest GDP growth for 2025 and forecast stronger growth in 2026 as lower interest rates and improved labour market conditions lift activity, although inflation pressures may moderate only gradually.
