“Similar to the September quarter headline results, there is a contrast between firms experiencing weak activity and expecting activity to improve in the next quarter,” the institute added.
“Although sentiment has improved, and there are expectations of a recovery in activity, firms remained cautious about hiring and investment.”
A net 17% of firms reduced staff numbers in the December quarter.
Several companies intended to reduce investment in buildings, plant and machinery in the year ahead.
“Firms look to be holding off on investment and hiring until they have more conviction about a sustained improvement in demand in their own business.”
The building sector was now the most upbeat of those surveyed in the December quarter.
The NZIER said a net 29% of building sector firms felt positive about the general economic outlook for the coming months.
“While architects expect the pipeline of housing and commercial construction to remain broadly flat over the coming year, architects surveyed expect an increased pipeline in the next 12 to 24 months.”
Westpac senior economist Michael Gordon said despite the more optimistic sentiment, the December quarter was tough for many companies.
“A net 26% of firms reported a drop in activity – more or less a repeat of what we saw throughout 2024,“ he said.
“Firms continued to shed workers, though at a slower pace than in the previous two quarters, and profitability remained weak.”
Gordon said a net 12% of firms reported price increases over the December quarter, compared to a net 5% in September.
“This was the first rise in this measure since March 2023. While it remains at a benign level in terms of the implications for the annual inflation rate, it does provide an early sign that the disinflation process is coming to an end.”
Kiwibank economists said today’s report confirmed inflation pressures were easing.
“Fewer firms reported higher costs over the quarter, and the share of firms that raised their prices also remains historically low.”
They said more firms were reporting the ease in finding labour but now the lack of sales was the main constraint on business.
Kiwibank economists called on the Reserve Bank to cut the Official Cash Rate (OCR) again, and expected a 50-basis-points cut next month.
The OCR is currently 4.25% and the next cash rate announcement will be on February 19.
