First Impressions: NZ business confidence, March 2026

March Sees Sharpest Business Confidence Drop in Months

A significant erosion of business confidence in New Zealand marked the month of March. The sentiment, particularly towards the latter half of the month, visibly soured as the global implications of the Middle East conflict began to crystallize for the island nation. This downturn is reflected starkly in the latest survey data, which captures a substantial dip from February's figures.

The headline business confidence index registered a steep decline, falling to 32.5 from the previous month's 59.2. This represents a significant loss of optimism among New Zealand's firms. Forward-looking indicators also paint a concerning picture. Expectations for a company's own trading activity dropped from 52.6 to 39.3, a notable retreat that suggests businesses are anticipating slower growth or increased challenges ahead. The measure comparing current activity to the same period last year also weakened, falling from 23.4 to 17.5, indicating a cooling of immediate operational performance.

Inflationary Pressures Build as Geopolitical Risk Intensifies

While forward-looking sentiment waned, the survey data simultaneously revealed accelerating inflationary pressures. The conflict, which intensified in late February, appears to have directly impacted cost expectations and pricing strategies. Businesses are bracing for higher input costs, with a substantial majority anticipating increases in the coming months. This is translating into a more aggressive stance on pricing.

Expected inflation for the next twelve months climbed to 3.08%, reaching its highest point since July 2024. This upward revision signals growing concern over price stability. Furthermore, a significant 85% of firms now foresee their own operational costs rising in the near future. This expectation is fueling a more pronounced intention to pass these costs onto consumers. Consequently, a net 60% of businesses are planning price hikes, the most aggressive sentiment seen since early 2023. These figures suggest that the geopolitical instability is acting as a direct catalyst for rising prices across the economy.

Reserve Bank Faces a Complex Balancing Act

The confluence of decelerating economic activity expectations and surging inflation presents a formidable challenge for the Reserve Bank of New Zealand. This scenario, often characteristic of supply-side shocks like sudden spikes in energy prices, demands careful policy calibration. While an immediate uplift in inflation is a predictable outcome of such disruptions, the central bank's focus will be on whether these price pressures become embedded through successive rounds of increases.

Crucially, the survey indicates a divergence between firms' intentions to raise prices and their outlook on wages. Despite the pressure to increase prices due to rising costs, measures for both past and expected wage growth have actually declined compared to February. This suggests that businesses are not anticipating, nor are they planning for, significant wage-price spiral dynamics. This is a critical distinction from the inflationary environment of 2021-2022, where robust labor market conditions and strong worker bargaining power contributed to persistent wage growth. The current landscape, marked by above-average unemployment and weaker employee leverage, appears to dampen the risk of such a feedback loop, offering a slight reprieve in the face of broader inflationary concerns.

Market Ripple Effects

The sharp deterioration in business confidence, coupled with rising inflation expectations, creates a complex outlook for the New Zealand economy. This juxtaposition of slowing growth and accelerating price pressures will likely keep the Reserve Bank of New Zealand on a hawkish footing, or at least hesitant to signal any immediate easing. The New Zealand Dollar (NZD) could face headwinds if confidence continues to erode, although higher interest rate expectations might offer some support. Traders will be closely watching the spread between inflation expectations and wage growth; a widening gap could signal further margin compression for businesses. The currency's performance against safe-haven assets like the US Dollar (USD) will be a key barometer of global risk sentiment, which is currently being influenced by geopolitical events. Additionally, equity markets, particularly domestically focused companies, may experience pressure as consumer spending power is squeezed by rising prices and uncertain economic prospects. The outlook for commodities, especially oil, remains a critical factor, directly impacting the inflation narrative and consumer behavior.