Firms gear up for expansion as labour market tightens
New Zealand business confidence has rebounded strongly, with firms reporting clearer signs that the post‑2025 recovery is starting to gain traction as lower interest rates filter through the economy.
The latest NZIER Quarterly Survey of Business Opinion (QSBO), shows a clear lift in sentiment across sectors.
The survey shows a net 39% of firms expect better general economic conditions over the coming months on a seasonally adjusted basis, up from a net 17% in the September quarter and the highest reading since early 2014.
Christina Leung (pictured left), NZIER deputy chief executive (Auckland) and head of membership services, noted that “NZIER business confidence rebounded in the December quarter, aligning with other signals that the economic rebound has continued and is poised to strengthen further in 2026.”
Confidence rebounds, activity turns the corner
Alongside the jump in headline confidence, firms are reporting a clear improvement in trading conditions.
There was “a marked improvement in firms’ own trading activity, with only a net 3% of firms reporting a decline in activity in their own business in the December quarter on a seasonally adjusted basis.”
Although firms’ own domestic trading activity is still lagging sentiment, NZIER says the results “suggest that New Zealand’s economic recovery is starting to take shape as the effects of lower interest rates flow through to the broader economy.”
Westpac’s Michael Gordon (pictured center) said the December QSBO “showed a more upbeat attitude among businesses than we’ve seen for some time. Activity is picking up, and hopes for the months ahead have continued to strengthen.”
Hiring and investment intentions strengthen
Improved sentiment is now feeding into employment and capital spending plans.
“Given these positive developments, firms’ hiring and investment intentions have increased," NZIER reported. "A net 5 % of firms increased staff numbers in the December quarter, and a net 22 % are planning to hire in the next quarter.”
On the investment side, “a net 11 % of firms plan to increase investment in buildings over the coming year, while a net 7 % plan to increase investment in plant and machinery. This contrasts with the negative investment appetite reported by firms in the September quarter.”
Mark Smith (pictured right), ASB senior economist, highlighted that “another promising sign was the recovery in investment intentions for both plant and machinery (to +7 from -13 in Q3), and buildings (to +22 from -10). Increased confidence over the durability of the current upswing, lower interest rates, and other specific policy supports (including the 2025 Investment Boost policy) look to have been major catalysts.”
Manufacturing leads the upswing as sentiment broadens across sectors
Business confidence improved across all sectors in the QSBO, with manufacturing now the standout. Manufacturers have swung from being the least optimistic in September to the most upbeat, with a net 56% expecting better times ahead, supported by stronger domestic and export demand and improved profitability despite elevated costs.
The building sector is also more positive about the outlook, with over half of firms expecting better economic conditions, but demand remains weak, with lower new orders, softer output and architects reporting a thin pipeline of housing, commercial and government work over the coming year, even though they see a recovery over 12–24 months.
Retailers and services firms are likewise more optimistic. Retail sales stayed soft in the December quarter, but new orders rose and retailers anticipate stronger demand. Services confidence has been lifted by firmer demand and expectations of further interest rate cuts, prompting some hiring, although profitability in the sector remains under pressure.
Labour market tightens at the skilled end
Survey indicators point to a stabilising labour market and the emergence of skill shortages in some areas. Net hiring turned positive in Q4, with around 5% of firms increasing staff numbers, the first positive reading since 2023.
At the same time, a net 2% of firms now report it is difficult to find skilled workers, while a net 15% still find it easy to hire unskilled staff, suggesting spare capacity remains at the lower‑skilled end even as pressure builds for specialised roles.
Smith added this “suggests that the NZ unemployment rate is close to peaking at around 5.3% and is expected to ease over 2026.”
Inflation pressures contained as RBNZ holds OCR at 2.25%
Cost and pricing indicators suggest inflation pressures remained broadly contained in the December quarter, with a net 37% of firms reporting higher costs and only a small lift in price increases.
Construction was the major outlier, with NZIER noting that a net 31% of building sector firms cut prices amid weak demand.
With spare capacity still evident, especially in construction, economists see little urgency for further interest rate cuts.
NZIER concluded: “With demand starting to recover but inflation remaining contained, we expect no further OCR cuts in this monetary policy cycle. We forecast the OCR to trough at 2.25% until the Reserve Bank of New Zealand commences increasing the OCR in the second half of 2026.”
For more information and insights, read the reports from NZIER, Westpac, and ASB.
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