• Business confidence improves despite Middle East conflict uncertainty
  • Net 40 percent expect economic improvement vs +14 pct in June survey
  • Businesses report softer current demand, but expect bounce back in 2027
  • Further RBNZ rate rises expected
  • Inflation pressures weaker, steady profit expectations, investment and hiring improve

Business confidence has improved markedly despite the uncertainty of the US war with Iran and soft trading conditions as firms loom ahead to recovery, according to the latest NZ Institute of Economic Research's (NZIER) Quarterly Survey of Business Opinion (QSBO).

The closely followed survey, conducted during September showed a net 40 percent of firms expect general economic conditions to improve in coming months compared to a net 14 percent in the June quarter.

It was the highest level of optimism in more than a year.

"While the impact of developments in the Middle East on sentiment appears muted for now, ongoing uncertainties over geopolitical conditions and global oil supply remain a headwind for New Zealand's economic recovery over the coming year," NZIER said in a commentary.

Firms' own trading activity was a shade weaker in the quarter, with a net 1 percent reporting worse business.

However, businesses were more optimistic about demand in the next quarter, with 15 percent expecting better trading from 11 percent in the previous survey.

Broad based confidence

Principal economist Christina Leung said the improvement in sentiment was broad based across all sectors.

"The retail sector is feeling particularly upbeat ... despite a fall in new orders and sales."

Leung said a factor in firms being upbeat despite current conditions might be firms becoming desensitised to fuel price rises, and a feeling that "things can only get better".

The building sector was also more upbeat, with positive reading still from manufacturers and service industries.

Overall firms were more inclined to invest and to hire, although finding skilled labour was re-emerging as an issue.

Inflation pressures softer

Leung said the survey suggested a weakening of inflation pressures.

Firms reporting higher costs fell to 47 percent from 54 percent, while those expecting to increase prices eased to 43 percent from 54 percent.

"Overall, these results suggest a reduced risk of inflation remaining elevated over the coming year," Leung said.

She said said the survey suggested flat growth in the economy over the quarter.

Firms also expected further Reserve Bank rate rises this year, but she said the NZIER did not think another rate rise was needed this year.