New Delhi

New Zealand's economic landscape appears increasingly bleak, with the potential for a hard landing looming large as business confidence takes a significant hit in the first quarter, Bloomberg News reported.

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According to the NZ Institute of Economic Research (NZIER), a net 25 per cent of firms are pessimistic about the economic outlook for the next six months, a sharp rise from 2 per cent in the previous quarter.

Additionally, a net 23 per cent reported a deterioration in their own trading conditions in the first quarter, marking the weakest reading since mid-2020 during the Covid-19 pandemic.

Bloomberg cited NZIER's Principal Economist, Christina Leung, who said, “The key question is whether we are headed for a soft or a hard landing. Previously our forecast was a soft landing for the New Zealand economy. With this release, it suggests increased risk of a hard landing.”

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The Reserve Bank of New Zealand is expected to maintain the Official Cash Rate at 5.5 per cent in its upcoming decision, with most economists anticipating monetary easing to commence in late 2024.

However, NZIER projects that policymakers will likely hold rates steady until May next year.

The central bank's high-interest-rate policy aimed at curbing inflation is beginning to manifest in the form of squeezed company profits and job cuts, exacerbating the economic slowdown.

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New Zealand's economy has contracted in four out of the past five quarters, raising concerns about further deceleration in 2024.

Leung pointed out that a hard landing or weaker economic activity could prompt the Reserve Bank to cut the Official Cash Rate sooner than expected, contingent on a faster slowdown in inflation.

Today's NZIER report offered little respite, revealing that a net 11 per cent of firms laid off workers in the first quarter, and only 2 per cent anticipate hiring in the upcoming three months.

Moreover, a net 33 per cent expect a decline in profits in the second quarter, and investment intentions are on the decline.

Despite the grim outlook, Leung highlighted a silver lining in the inflation front, noting that fewer companies plan to raise prices even as costs escalate.

The business sentiment had received a temporary boost in the fourth quarter following the election of a centre-right government committed to reducing economic red tape and cutting taxes.

However, the post-election optimism has waned, giving way to the harsh reality of a weak economy.

Miles Workman, senior economist at ANZ Bank New Zealand, summed up the prevailing sentiment, saying, “The post-election honeymoon is now over and the reality of a weak economy is back in the driver’s seat. The overall vibe is a deterioration from last quarter on the activity front, with a little progress on the inflation side.”

(With inputs from Bloomberg)