Middle East conflict derails fragile recovery
Westpac’s latest Regional Roundup suggests New Zealand’s patchy recovery has lost momentum, with the Middle East conflict driving another wave of cost pressures and uncertainty.
Senior economist Satish Ranchhod (pictured) says earlier signs of firmer activity have been knocked back by sharply higher fuel costs and concerns about supply security, which are now spilling well beyond transport.
That picture lines up with NZIER’s latest Quarterly Survey of Business Opinion, which found only a net 1% of firms expecting better general economic conditions over the coming months, down sharply from 39% in December.
Across many regions, businesses report they are in “no hire, no fire” mode, aiming to hold on to staff rather than expand headcount as demand softens and margins are squeezed. That anecdotal caution is backed by NZIER’s survey, which showed a net 9% of firms cut staff over the March quarter and a net 5% plan further reductions, underlining how quickly hiring intentions have cooled.
Consumer-facing sectors remain weakest. Retail and hospitality operators in several regions highlight households prioritising essentials, with some customers choosing to repair or “make do” rather than spend on big‑ticket items.
Rural regions stay hotter than big cities
The report highlights a clear regional split. Southern regions such as Canterbury, Southland, and Otago are described as the strongest performers, supported by firm commodity export prices and still‑solid tourism flows. In Southland, one business noted that “demand has been strong, particularly with our agricultural supplementing industries and farmers having a prosperous year.”
By contrast, urban and more services‑heavy centres are cooler. Auckland’s economy is rated “cold”, with businesses reporting that “demand has reduced” after a better start to the year.
A soft jobs market in the city is feeding through to weaker discretionary spending, which may temper housing demand from first-home buyers and property investors in the short term.
Confidence strongest in dairy heartlands
Westpac’s consumer confidence survey shows sentiment highest in dairy‑intensive areas, particularly in the South Island, while Wellington and Taranaki–Whanganui–Manawatū lag amid ongoing demand softness. That mirrors on‑the‑ground feedback, with Waikato and parts of the Bay of Plenty also “generally improving, albeit coming off a low base.”
Against that patchy confidence backdrop, the broader inflation picture remains challenging. March quarter CPI has held at 3.1%, with non‑tradables inflation stuck at 3.5%, keeping pressure on the Reserve Bank and raising the risk of an earlier‑than‑expected OCR hike.
Access the NZ Regional Roundup here.
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