Business confidence lifts, but challenges still run deep
New Zealand business confidence rose in June 2025 as global tariff concerns eased, but firms continue to report soft trading conditions and ongoing cost pressures, according to ANZ’s latest Business Outlook.
“Business confidence jumped nine points to a net 46% in June expecting better business conditions, and expected own activity rose 6 points to net 41%, as the global tariff turmoil faded,” said Sharon Zollner (pictured), ANZ chief economist.
However, Zollner noted that the recovery is uneven: “Past own activity (the best GDP indicator) fell three points to two, and past employment was flat at -10, both very subdued.”
Michael Gordon, Westpac senior economist, echoed the sentiment.
“Business confidence picked up in the June ANZ business opinion survey, reversing some of the fall seen in May in the wake of the US tariff announcement,” Gordon said.
Agriculture leads optimism, other sectors lag
Agriculture regained its title as the most optimistic sector, benefiting from strong export returns.
“After a drop in May, agriculture regained its position as [the] most optimistic sector, with own-activity expectations reaching their highest levels since 1993,” Gordon said. “This no doubt reflects the strong returns from a range of export commodities in recent months.”
He added that although other sectors saw a lift in confidence, they have “not returned to their pre-tariff levels.”
Zollner confirmed that the rebound in forward-looking indicators aligns with the stronger responses seen in late May.
“Forward-looking activity indicators generally lifted in June as tariff noise subsided,” she said. “However, in terms of what firms are experiencing, things remain pretty soft.”
Activity and employment slump despite optimism
While future expectations improved, actual trading activity is still weak.
“A net 2% of firms said that their activity was up on the same time last year, compared to 5% in May,” Gordon said.
He highlighted sectoral divides: “Agriculture is well up on last year, but the retail, manufacturing and construction sectors reported that activity was significantly weaker than a year ago.”
Zollner agreed that “there’s been a bit of a slump recently in both activity and employment.” She added that “while economic growth in Q1 was decent at 0.8% q/q, the omens for Q2 are not looking nearly so positive.”
Inflation pressures and margin squeeze persist
Price and cost expectations remain high.
“The net percent of firms expecting to raise prices imminently was up 1 point to 46% and the equivalent cost measure rose 6 points to 79%,” Zollner said. “Firms on average expect costs to rise 2.5% over the next three months, while they expect to raise prices by 1.6%.”
Gordon also pointed out that cost inflation is accelerating. “A net 79% of firms expect their costs to rise – up from 73% in May – and this measure has been trending upward again since late last year.”
Zollner warned that the current pricing expectations are still “too high to be called consistent with the RBNZ’s inflation forecasts,” suggesting pressure on margins is still strong.
Interest rates less of a constraint on investment
Despite ongoing challenges, interest rates are becoming a less prominent concern for businesses.
Zollner noted that while global and domestic economic uncertainty are weighing on firms’ investment decisions, “interest rates are now less of a constraint – though interestingly, they are also now a relatively less important consideration for those planning to invest more.”
She added that “skilled labour shortages or labour costs are not a significant driver for either group currently.”
May budget has limited immediate impact
The May budget’s Investment Boost scheme had only a partial effect on sentiment.
“There was only tentative evidence that the May budget… had an impact on business sentiment,” Gordon said. “The most significant lift in investment intentions was in the agriculture sector.”
Zollner added that among firms planning to invest, “central government policy has increased as a driver and is now the second most important reason for investing (presumably related to the Investment Boost in the May budget).”
Biggest problems: Turnover, competition, and inflation
Firms continue to cite low turnover and intense competition as their most pressing issues.
“Competition and low turnover continue to dominate,” said Zollner, adding that “interest rates are receding as a direct issue – but of course have contributed to the low turnover in many instances, particularly retail and construction.”
The agriculture sector stands apart slightly, with more concern over non-wage cost inflation and, “surprisingly, cashflow and debtors.”
However, Zollner said, “it’s fair to say the agriculture sector is less weighted down by problems than other sectors currently.”
Outlook: Cautious optimism, but recovery still fragile
Both ANZ and Westpac economists warn that optimism must be tempered by reality.
“It continues to be a difficult business environment for many. Costs are still going up and margins are being squeezed,” Zollner said. “Dark clouds globally are impeding risk-taking.”
Gordon agreed that inflationary pressures remain a constraint.
“Simmering inflation pressures mean that the RBNZ doesn’t have free rein to keep cutting interest rates,” he said.
“We continue to expect that the RBNZ will deliver more easing than the committee currently expects… though we acknowledge that the Committee seems of a mind to tread more cautiously,” Zollner said.
For more insights, read the full ANZ report and the Westpac commentary.
