New Zealand's business confidence saw an improvement in Q4 2024, reaching its highest point since the second quarter of 2021, though the economy remains sluggish, according to a private think tank's report published this week.

The New Zealand Institute of Economic Research (Nzier) quarterly survey of business opinion revealed that 16% of firms surveyed expected business conditions to improve in the fourth quarter, a notable increase compared to just 1% of firms expressing pessimism in the third quarter.

However, Nzier noted that more than half of the survey responses were submitted before the release of the third-quarter GDP data on 19th December. That data, which significantly missed market expectations, revealed that New Zealand had entered a technical recession.

“Although sentiment has improved, and there are expectations of a recovery in activity, firms remained cautious about hiring and investment,” Nzier said in its report.

On a seasonally adjusted basis, a net 9% of firms expected business conditions to improve, compared to a net 4% expressing pessimism in the previous period. The survey’s capacity measure also rose to 91.3%, up from 89.1% in the previous quarter, Reuters reports.

However, Nzier cautioned that despite the ongoing improvement in business confidence, the indicator of firms' own trading activity continues to point to a weak demand environment.

Christina Leung, principal economist at Nzier, told reporters and economists that the results suggest the economy contracted further in the fourth quarter.

Furthermore, the survey's cost and pricing indicators point to ongoing monetary easing in New Zealand. A net 10% of firms reported being able to raise prices to pass on costs, a historically low level, although it was slightly higher than the net 3% reported in the previous quarter.

“We don’t see anything in these results which would stand in the way of another 50-basis point OCR (official cash rate) cut by the Reserve Bank at its February meeting,” Leung added.

New Zealand's central bank has reduced the cash rate by 125 basis points since August. The market anticipates an additional 50 basis point cut when the bank meets on 19th February.