New Zealand firms are bracing for a prolonged period of weak economic activity, with many planning further job cuts in the coming months. According to the latest quarterly survey conducted by the New Zealand Institute of Economic Research (NZIER), businesses have adopted a cautious stance, significantly scaling back on both headcount and investment initiatives.

The survey highlights a stark shift in sentiment, revealing that a seasonally adjusted net 37 per cent of firms reported a decline in domestic activity during the June quarter. This figure marks a substantial increase from the net 12 per cent of firms expressing similar concerns in the previous survey. As companies navigate a landscape fraught with uncertainties, expectations for the next quarter remain pessimistic, with a net 25 per cent anticipating continued deterioration in conditions, compared to a net 14 per cent in the prior survey.

NZIER noted that the typical trend of declining business confidence often intensifies as general elections approach. This year, the uncertainty is further exacerbated by concerns surrounding the trajectory of the Covid-19 outbreak. Many businesses are delaying significant spending decisions until after the election, driven by fears over potential policy shifts and their implications for the economy.

A striking indicator of this cautious approach is reflected in employment trends. The survey found that a net 19 per cent of businesses reduced their workforce in the June quarter, and a staggering net 28 per cent expect to do the same in the upcoming quarter. This level of anticipated job cuts represents the lowest point since March 2009, underscoring the seriousness of the current economic climate.

Interestingly, while the demand for skilled labour has become less pressing, with a net 19 per cent of firms reporting that it is easier to find skilled workers compared to a net 44 per cent struggling in the previous survey, the overall sentiment regarding employment remains grim. Companies are actively seeking to reduce headcount, reflecting a broader trend of cautiousness in workforce management.

Investment plans also reflect this downturn in sentiment. A significant net 36 per cent of businesses indicated intentions to scale back investment in buildings and plant and machinery over the next year. This reduction in capital expenditure is indicative of firms’ reluctance to commit to long-term projects amid uncertainty regarding economic recovery.

Despite these worrying trends, there was a slight improvement in headline business confidence. The latest survey revealed that a seasonally adjusted 59 per cent of firms expressed a negative outlook on the general business situation, a decrease from the 68 per cent recorded in the prior survey. However, this marginal improvement does little to offset the overall pessimism surrounding economic conditions in the months ahead.

NZIER concluded that while the uptick in headline business confidence might suggest a glimmer of hope, the prevailing sentiment among businesses remains one of caution and uncertainty. As firms continue to grapple with weak activity and job cuts, the path to economic recovery appears challenging, with many looking towards the upcoming election and its potential implications for the business environment.