Business confidence in New Zealand deteriorated sharply in March, with the ANZ Business Confidence Index falling from 59.2 to 32.5 as geopolitical tensions disrupted the recovery narrative. The decline was most pronounced in responses late in the month, which averaged -23, highlighting the extent to which sentiment has deteriorated as uncertainty grows in the wake of the escalation in the Middle East.
The hit to morale was offset by a slowdown in activity expectations. Private activity expectations fell from 52.6 to 39.3, indicating that companies are already seeing a decline in demand as decision-making is postponed. ANZ noted that although the recovery had begun to take hold earlier in the year, conditions had changed rapidly, with businesses reporting an immediate impact on activity as uncertainty increased.
At the same time, inflationary pressures moved in the opposite direction. Inflation expectations rose from 2.93% to 3.08%, while the share of companies expecting a 7-point price rise rose to 60%, and even higher to 67% in delayed responses. The average expected price increase also accelerated from 2.0% to 2.4%, or 3.3% in the late-month sample, indicating increasing pricing power despite weak demand.
Cost pressures are also increasing, with 85% of companies expecting costs to rise, up from 79%, the highest level since early 2023. The late-month reading of 93% represents the strongest since mid-2022.
