Confidence edges higher, but activity remains patchy
ANZ’s July 2025 Business Outlook shows a modest uptick in headline business confidence, rising 2 points to a net 48%, but underlying activity remains mixed and subdued across key sectors.
Expected own activity was flat at a net 41%, while past own activity rose 4 points to +6.
However, past employment fell 3 points to -13, a weak signal across all major industries.
“It continues to be tough going for many firms. Most forward-looking activity indicators saw little movement this month,” said Sharon Zollner (pictured), chief economist at ANZ.
Reserve Bank chief economist Paul Conway said global uncertainty and tariffs are fuelling a “wait and see” approach among businesses and households.
Construction activity slumps to year low
Residential construction sentiment deteriorated significantly, with expectations falling to their lowest level in a year.
“It appears residential builders are giving up on a recovery any time soon,” Zollner said. “There was a sharp drop in construction intentions this month.”
Past activity levels across sectors diverged: agriculture showed strength, while retail, construction, and manufacturing reported negative momentum.
“The various economic sectors have fanned out in all directions,” she said.
Employment weak across the board
The ANZ report highlighted declining labour demand.
“Reported past employment is in the red for every sector – most dramatically for retail,” Zollner said.
ANZ expects this will be reflected in the official data.
“We expect HLFS employment fell in Q2,” she said.
BNZ also flagged ongoing labour market softness, forecasting a peak unemployment rate of 5.4% by Q4 and slowing wage growth into mid-2026.
Conway echoed this cautious sentiment, noting that heightened uncertainty is delaying major hiring and investment decisions.
“When businesses aren’t sure what’s coming, they hold off hiring and delay big investments,” he said.
Price and cost pressures ease
Inflation indicators showed further signs of cooling. The net proportion of firms expecting to raise prices fell two points to 44%, while those expecting cost increases dipped three points to 76%.
“Inflation indicators were benign, with both expected cost and pricing expectations, and the net share of firms expecting them to increase, easing this month,” Zollner said.
Firms now expect costs to rise 2.4% over the next quarter (down from 2.5% in June) and prices to rise 1.4% (down from 1.6%). Expected and past wage growth both held steady at 2.5%.
Jones noted that “construction costs fell outright in Q2 for the first time since 2011,” contributing to lower CPI forecasts. BNZ expects inflation to peak at 2.9% in Q3, while RBNZ is forecasting headline CPI to reach 2% by early 2026.
Outlook: OCR cut still on the table
Zollner suggested inflation moderation could strengthen the case for monetary easing later in the year.
BNZ’s Jones also believes the case for an August rate cut is solid, saying, “A 25bps cut in August is as close to fully priced as it gets.” The bank expects a low of 2.75% in the OCR cycle.
Conway confirmed the Reserve Bank is prepared to lower rates further if medium-term inflation continues to ease, reinforcing the July Monetary Policy Review’s guidance.
“The committee sees scope to lower the OCR further if medium-term inflation pressures continue to ease as projected,” he said.
Read the ANZ New Zealand Business Outlook in full.
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