New Zealand firms gloomy as Iran war hits costs, profitability
The NZIER expects the RBNZ will commence a tightening cycle with a 25 basis point hike in July
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[WELLINGTON] New Zealand businesses expect to fire workers and reduce investment as the Middle East conflict drives up costs and hits profitability, according to a new business survey.
Overall business confidence fell to its lowest since mid-2024 with a net 4 per cent of firms expecting the economy will deteriorate in the next six months, the New Zealand Institute of Economic Research (NZIER) said in its Quarterly Survey of Business Opinion released on Tuesday (Apr 21) in Wellington. That’s a sharp reversal from the 48 per cent expecting improvement just three months earlier.
The survey was taken till March and early April as the Iran war erupted, disrupting global fuel supplies and driving up prices. The impact on costs has fanned expectations the Reserve Bank of New Zealand (RBNZ) will increase interest rates sooner than it previously expected, which poses a risk to future demand.
Asked about their own trading, firms were less pessimistic with a net zero reporting an improvement in the first quarter and 13 per cent expecting a lift in the three months to June.
“While there is still optimism about activity in their own business ahead, we are seeing increased caution coming through in hiring and investment,” NZIER principal economist Christina Leung told a briefing.
A net 9 per cent reduced headcount in the first three months of the year and 5 per cent expect to fire workers in the second quarter. A net 12 per cent plan to reduce investment in buildings over the coming year and 9 per cent plan to cut back spending on plant and equipment.
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A net 20 per cent reported lower profitability and 15 per cent expect earnings to fall in the second quarter, the survey showed.
Cost and expected prices responses suggest inflation pressures are contained for now, Leung said. A net 45 per cent see costs rising in the second quarter and 43 per cent expect to raise prices, the survey showed.
“Soft demand is limiting how much firms can pass through higher costs,” which suggests the risk of persistently high inflation is modest, she said. The NZIER expects the RBNZ will commence a tightening cycle with a 25 basis point hike in July. BLOOMBERG
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