Charts of the Week: More like charts of the weak

Published on 08 July 2024

Here at home, the data flow continues to soften. Last week, NZIER’s Quarterly Survey of Business Opinion underscored the painful impact of tight monetary policy. Businesses are hunkering down and pulling back. But there is a glimmer of hope as cost pressures also eased.


Jarrod Kerr

Chief Economist


Mary Jo Vergara

Senior Economist

Sabrina Delgado

Sabrina Delgado


Business confidence deteriorated in the June quarter. High interest rates are weighing on demand, with more businesses seeing a decline in trading activity. Weak-to-miserable growth remains the outlook. Overall, it supports our call for RBNZ rate cuts, sooner rather than later. We’re sticking to our call for cuts to begin in November. Otherwise, we’re likely to see severe economic scarring.

A further deterioration in activity indicators reminds us that we’re not out of the woods yet. A net 25% of firms reported a decline in trading activity, up from 23% last quarter. Given the clear correlation between trading activity and growth, the economy seems to be shaping up for another contraction in the June quarter. Looking ahead, the outlook is not much better, hence our downgraded growth forecasts. As we pointed out in our latest outlook note Survive ‘til 25: it’s a white-knuckle ride we now see the economy growing just 0.1% this year. That’s well below the long-term average of 2.5%. The RBNZ has the economy in a chokehold, and the pulse will only strengthen once rates are reduced.

QSBO June24 expected activity GDP

The ”good news” in the report was the fall in experienced ‘costs’. The inflation dragon has been slain, we’re just waiting for it to hit the turf. This is good news for businesses, who have had to deal with rapid inflation in parts. High inflation, coupled with weakening demand, has hurt profitability. And it appears ‘profitability’ is not looking too good. It’s hard to invest for future growth when your profitability is in decline.

QSBO June24 costs and profit

When businesses stop investing for the future, that kills growth. When businesses tell us they’re unwilling to invest in more staff, equipment, buildings and all that good stuff that generates growth, well, we take a red pen to our forecasts. Yes, the RBNZ’s actions are designed to rein in business intentions, from the rapid rebound out of Covid. But enough is enough. The risk here is severe economic scarring, from overly restrictive monetary policy.

QSBO June24 hiring and investment intentions

Fewer firms reported increased costs and raised prices over the quarter. A net 42% of firms experienced higher costs, far fewer than the net 49% of firms last quarter and net 70% last year. The improvement is feeding through to an easing in pricing. A net 23% of firms raised prices over the quarter – down from the last print of a net 35%. That’s the lowest since March 2021. And looking ahead, the proportion of firms expecting to raise prices is also shrinking.

QSBO_June24_cost vs pricing

See our full report.