‘Worst of all worlds’: Why business confidence survey suggests recession ‘faster, deeper’

A net 9% of firms are now looking to cut staff, according to NZIER's survey.


A net 9% of firms are now looking to cut staff, according to NZIER’s survey.

The latest quarterly survey of business opinion from the New Zealand Institute of Economic Research is “the worst of all worlds”, BNZ says.

It suggested profits were “collapsing” and hiring intentions were down, but that cost pressures for businesses remained extremely elevated, the difficulty in finding labor is extreme and their expectations of price rises are as high as ever, the bank said in a research note.

“It’s all starting to look like stagflation on steroids.

“There is no sign inflation is abating in any meaningful way, yet the survey adds more weight to our long-held argument that the economy is headed for recession. Moreover, that recession could come faster, and be much deeper, than many care to believe.”

Kiwibank agreed the plunge in business confidence made a recession more likely and showed businesses had been spooked by tough talk and action from the Reserve Bank in November.

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Business confidence sank to its lowest level since the NZIER began surveying sentiment in 1970, on a seasonally adjusted basis.

NZIER said the survey made for “grim reading”, with a net 73% of businesses expecting conditions to worsen over the coming months.

“Business confidence is the weakest in the history of the survey,” NZIER principal economist Christina Leung said.

“Firms have become much more cautious and are now looking to reduce staff numbers.”


The World Bank warns the global economy is on a “razor’s edge”.

A net 9% were expecting to cut staff early this year, NZIER found.

But acute staff shortages remained suggesting wage pressures would remain elevated over the coming year, he also said.

A net 13% of the firms NZIER surveyed also reported a decline in their own business activity over the previous quarter, which was the weakest result since the June quarter of 2020 when firms were plunged into the Covid level 4 lockdown.

A higher proportion, a net 33%, expected a decline in their own activity in the coming quarter.

“Firms have also reduced investment plans substantially, particularly when it comes to investment in buildings,” NZIER said.

Retail businesses were feeling “very downbeat”, it found.

ANZ said “the big worry” in the data was that it showed costs and pricing lifting last quarter and in the current quarter.

“That’s going the wrong way and suggests near-term inflation pressures remain acute and far too high for the Reserve Bank to call these data ‘comforting'”, it said.

The survey was conducted between November 28 and January 9, so captured the impact of the Reserve Bank’s hawkish monetary policy statement on November 24 and its governor Adrian Orr’s admission that the central bank was trying to engineer a recession to tame inflation.

Leung said the survey pointed to an increased risk of a recession.

The bleak mood comes in the wake of evidence that businesses have, at least up until recently, been enjoying high profits, with Inland Revenue raking in a bumper $19.9 billion from company tax in the year to June.

That was 31% more than in 2019, the last full year before Covid, and 80% up on the $11.1b businesses paid in company tax in 2016.

Despite speculation that higher profits have been largely concentrated within large corporates, an IR spokesperson has said the big picture story for the 2020-21 year had been “very strong business profits across the board”, other than in those sectors heavily disrupted by Covid- 19 and closed borders.

Tax law prevents IR from providing detailed information on the source of company profits.

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