A new survey has found that making sales has become the biggest challenge for businesses in the first three months of the year, overtaking the shortage of labour for the first time since 2021.
The New Zealand Institute of Economic Research’s latest Quarterly Survey of Business Opinion found 41% of firms now report sales as being the primary constraint on their business, ahead of 29% which reported finding labour as the main limit.
NZIER, which has conducted the survey since 1961, said this showed that capacity pressures in the economy were easing as the Reserve Bank of NZ (RBNZ) lifted the Official Cash Rate (OCR).
Finding labour has been named as the top constraint for businesses in every survey since September 2021. However, the RBNZ has been trying to bring demand more in line with supply, while the reopened borders have allowed overseas workers to enter the country.
In the same survey a year ago, just 26% of businesses said making sales was their biggest constraint.
Other inflation indicators in the survey were mixed, with less businesses reporting higher costs but also a slight increase in those increasing their prices.
“Nonetheless, the weakening demand has flowed through to a deterioration in business profitability, with over half of firms surveyed reporting a decrease in their profits over the March quarter,” NZIER said.
A net 34% of firms said their profitability had declined in the past three months and a net 33% said it would decline in the next three months.
The overall results of the survey showed improvement from the December quarter – which was one of the weakest results since the 1970s – with a net 61% of businesses in the latest survey expecting the economy to deteriorate (up from an all-time low of 73% expecting deterioration in the December quarter).
A net 76% of the building sector expect economic conditions to worsen in the coming month, and architects’ measure of their own activity suggests a further slowdown in housing and commercial construction.
The retail sector was also pessimistic, although less so than in the December quarter. Demand remained weak and cost pressures were weakening profitability in the sector.
A net 68% of services sector firms were downbeat about the general economic outlook. Although demand was subdued, more firms raised prices in the March quarter.
Principal economist Christina Leung said the key question for RBNZ was whether this traction would continue in the economy.
NZIER’s survey is the longest-running business opinion survey. It asks about 4,300 firms about economic conditions each quarter.
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