Economic activity was resilient in the December quarter even as inflation pressures eased, according to a survey by the New Zealand Institute of Economic Research. 

NZIER said a net 6% of firms reported an increase in their own trading activity during the final quarter of 2023 on a seasonally adjusted basis.

The survey also showed an easing in skilled and unskilled labour shortages, which were acute this time last year, and inflation pressures. 

Significantly fewer firms reported higher input costs or increased their own prices during December, compared to the same period the previous year. 

Westpac senior economist Satish Ranchhod said the survey showed New Zealand’s economy was starting 2024 with a “Goldilocks combination” of economic signals.  

“Trading activity has been resilient and businesses are looking to take on staff. At the same time, the strong inflation pressures that have been buffeting the economy are easing”.

While inflation indicators were dropping back, the survey still showed strong price and cost pressures which were “consistent” with inflation staying above 3% for “some time yet”.

ANZ economist Andre Castaing and chief economist Sharon Zollner said the survey showed the NZ economy had “unexpectedly got some wind in its sails”.

Businesses were in a more positive mood with headline confidence jumping from a net -49% in December 2022 to -10% at the end of 2023.

However, average business confidence runs approximately 27 points higher under National-led Governments than Labour ones.  

Domestic trading activity tends to be only 2 points higher which may suggest it is more reflective of actual underlying economic activity. 

That measure lifted 23 points, on a seasonally adjusted basis, with a net 6% of firms reporting an increase — the strongest reading since 2021 and only 4 points below the long term average. 

“After many stubborn quarters, pricing and cost measures fell meaningfully, but do not yet look consistent with inflation back in the [Reserve Bank of New Zealand’s] target band,” Castaing and Zollner said.

Mark Smith, a senior economist at ASB Bank, said progress on lowering inflation could be undone if the recovery in demand impacts pricing decisions.

“The RBNZ is expected to remain wary and is unlikely to cut the OCR until it is supremely confident inflation will settle in the 1-3% target range,” he said in a note. 

“OCR cuts in the first half of the year look unlikely, and there is still the risk that policy easing could be delayed until 2025 if domestically generated inflation fails to cool sufficiently”.

Recent analysis by Bloomberg Economics said 2024 would be dominated by interest rate cuts in most economies around the world. 

James McIntyre, an economist who worked on the report, said rate cuts in New Zealand could begin as early as March this year.

“The RBNZ’s hawkish stance is unrealistic and won’t last long in 2024,” he said in early January. 

Bloomberg Economics believes the 525 basis point increase to the official cash rate was being fully felt with the economy contracting, unemployment rising, and inflation cooling.

The temporary boost from strong migration could “fade fast in early 2024” forcing the central bank to pivot from fighting inflation to reviving demand.