Editorial: Business taking optimistic view on New Year despite uncertain recovery

Businesses are optimistic of a better year ahead despite activity being yet to pick up. Photo / Brett Phibbs

Editorial

Optimism is on the rise among business leaders, even though uncertainty remains over when demand for their products and services will pick up and the international trading environment is mixed.

The mantra of 2024 was “survive until 25″ and now that we have reached 2025, many are looking for signs of growth.

The cuts to the Official Cash Rate (OCR) mean borrowers should have more cash in their pockets to spend while at the same time the rate at which prices have been rising has slowed considerably.

But there is no ignoring the fact that prices for consumer goods have risen sharply in the past five years and there are no signs of them falling.

The latest figures from the NZIER quarterly survey of business opinion show a net 9% of firms expect an improvement in the business environment compared with a net -4% in September last year.

When it comes to their own performance over the next three months, a net 9% were more positive compared with -2% in the prior quarter. As Westpac economists noted this week, the pick-up in sentiment remains largely in the realm of expectation rather than actual performance to date.

There is no denying the last three months of 2024 were tough. A net 24% of firms reported a drop in activity – consistent with what firms had been reporting for most of last year.

Confidence is also rising in employment, with the Westpac-McDermott Miller Employment Confidence Index rising to 91.6 in the December quarter, up 2.4 points from the September quarter at 89.2.

The index still remains below 100, which indicates more Kiwis are pessimistic about the state of the labour market than are optimistic, but there are signs that companies are shedding workers at a lower rate and some are hiring.

The Monthly Employment Indicator showed a 0.3% increase in jobs filled in November, although job advertisements remain low.

The reality is it takes time for the OCR cuts to take effect. For some, it could be a year or longer before they see their mortgage payments come down.

But there are more cuts to come, with the Reserve Bank strongly signalling that a further 50 basis point cut to the cash rate is likely next month. That could mean it falls from the current 4.25% to 3.75%.

Internationally the picture is less clear. Rising inflation in the United States and looser monetary policy under President-elect Donald Trump are expected to put further cuts by the Federal Reserve on hold.

The Trump Government also brings greater uncertainty in terms of tariffs. New Zealand exporters will be cautious about what these tariffs could mean for them – but at the same time, a lower kiwi dollar versus the greenback will be helping them to sell products offshore.

The first half of this year is likely to remain tough for many, but let’s hope the optimists win out in the second half so both businesses and consumers find themselves on firmer ground.