Business Confidence Drops Sharply Amid Middle East Crisis

A key survey of New Zealand business sentiment has recorded a dramatic fall in optimism, which economists attribute to the onset of the Iran war. The New Zealand Institute of Economic Research's (NZIER) Quarterly Survey of Business Opinion (QSBO) showed a net 4% of firms expected general business conditions to worsen in the first quarter. This starkly contrasts with the net 48% optimism recorded in the previous quarter.

The survey was conducted between March 6 and April 10, shortly after the Iran war began.

Sharp Decline in Headline Figures

On a seasonally adjusted basis, the decline was even more pronounced. Only 1% of firms expected business conditions to improve, compared to 39% optimism in the previous period.

Christina Leung, principal economist at NZIER, said in a press conference that there had been a sharp decline in headline business confidence because of the Middle East crisis. She stated that this increased caution among firms was affecting both hiring and investment decisions.

Mixed Signals on Capacity and Inflation

Despite the drop in confidence, the survey's measure of capacity utilisation rose to 91.2%, up from 89.8% in the previous quarter.

In a statement, NZIER noted that the QSBO's costs and pricing indicators suggest inflation remains broadly contained in the economy for now, despite rising fuel prices.

Central Bank in 'Wait and See' Mode

The survey results come amid a complex economic backdrop. New Zealand's economy returned to growth in the second half of 2025 and was expected to grow through 2026, with unemployment projected to fall.

However, the central bank has warned that turmoil in the Middle East and the sharp increase in fuel prices will likely dampen growth over the coming months. Reflecting this caution, New Zealand's central bank held the cash rate at 2.25% in April, opting to wait and see the impact of the Middle East crisis on the economy. The bank has signaled it would act decisively if inflation increases.