Confidence slides and rising costs pose new challenges for borrowers
New Zealand business confidence deteriorated sharply in March, raising fresh questions for interest rates and the outlook facing mortgage advisers and their clients.
ANZ’s latest Business Outlook survey shows headline confidence dropping from a net 59% positive in February to 33% in March. Late‑month responses even turned negative as the impact of the Middle East conflict sank in.
ANZ chief economist Sharon Zollner (pictured) says survey responses swung after the outbreak of conflict, noting that “The world changed this month.” Zollner adds that “It’s unsettling times for businesses,” just as signs of an economic recovery had begun to firm.
Commenting on the ANZ findings, Westpac senior economist Michael Gordon says it is “entirely understandable that business confidence took a sharp blow in March, with the Iran conflict kicking off at the end of February.”
The ANZ survey shows that while most forward‑looking indicators remain in net positive territory, both ANZ and Westpac economists highlight a marked deterioration later in the month, suggesting the shock is still working its way through the economy.
Retail and construction feel the squeeze first
Beneath the headline numbers, the ANZ survey points to a broad‑based slowdown, but retail and construction – key sectors for housing demand and household spending – are under the most pressure.
The share of firms reporting higher activity over the past year slipped, with retail’s net reading dropping sharply and construction turning negative. These are among the industries most sensitive to interest rates and confidence, which underlines the risk of softer demand for property purchases, renovations and consumer finance.
Businesses also report weaker hiring, especially in retail, alongside a growing list of worries led by competition, non‑wage costs and exchange rate volatility. Geopolitical and tariff uncertainty has become a more important driver for firms pulling back on investment, while higher interest rates are now a bigger factor in capital spending decisions.
Inflation pressures complicate the Reserve Bank’s path
For mortgage holders, the focus now is how the Reserve Bank responds.
Governor Breman’s recent speech indicates the OCR is likely to stay at 2.25% next week, with RBNZ expected to look through the initial impact of higher oil prices while keeping a close watch for any second‑round effects on pricing behaviour.
The ANZ survey shows price pressures intensifying despite softer activity. ANZ finds more firms expecting cost increases and planning to raise prices, while Westpac reports inflation expectations at their highest level since mid‑2024 and a net 60% of firms intending to lift prices.
Zollner warns that “one firm’s risk (a purchase, an investment, a hire) is someone else’s opportunity.” For advisers and borrowers, that means navigating an environment where growth is fragile but inflation – and therefore mortgage rates – could stay higher for longer than previously hoped.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
