A new survey puts optimism at levels last seen post-GFC, reinforcing hopes of stronger hiring and investment in 2026.
To receive The Bulletin in full each weekday, sign up here.
Confidence highest since 2014
Business confidence has climbed to its highest point in more than a decade, according to the latest survey from the New Zealand Institute of Economic Research. A net 39% of businesses now expect general economic conditions to improve over the coming months, up from 17% in the September quarter. It’s the strongest response since March 2014, when the economy was rebounding from the global financial crisis. The lift in sentiment was broad-based, with manufacturing the standout: a net 56% of manufacturers expect better times ahead.
The results confirm a trend already flagged in last month’s ANZ business outlook survey. As RNZ reported, that survey had headline business confidence at a whopping net 74%, the highest level in 30 years. Taken together, the surveys point to a recovery that is starting to feel more tangible, with a likely lift in hiring as a result. NZIER reports a net 22% of firms plan to increase staff numbers in the next quarter, raising hopes of a gradually improving job market in 2026.
Optimism runs ahead of reality
Despite the upbeat mood, the NZIER survey also highlights a lingering gap between expectations and recent experience. A net 3% of respondents reported a decline in their own trading activity in the December quarter, a reminder that conditions on the ground remain patchy.
The caution is reinforced by fresh retail figures from payments provider Worldline, which show discretionary spending remained subdued through December. As Aimee Shaw reports in The Post (paywalled), households spent more on food but cut back elsewhere, suggesting many are still prioritising essentials and remain uneasy about job security and the broader outlook.
The OCR outlook
On interest rates, NZIER expects no further cuts in this cycle, forecasting the Official Cash Rate to stay at 2.25% before rising in the second half of 2026 – a view broadly shared by other economists. In Stuff, Damien Venuto notes that some of those expected increases have already been priced in by banks, pushing up longer-term and floating mortgage rates. Two-, three- and five-year rates have risen even though the OCR itself has not yet moved. And on Monday, ANZ raised its floating rates by 10 basis points, with the bank saying it was a small change “to align with market conditions”.
Venuto explains that the Reserve Bank is aiming to guide the economy back toward a “neutral sweet spot” – neither stimulating activity nor restraining it. Westpac chief economist Kelly Eckhold puts that neutral level at around 3.75%, which could be reached gradually by 2028 if the recovery holds. The last time the OCR sat at 3.75%, borrowers with 20% equity could secure a two-year fixed rate of about 5.29%; right now, similar borrowers are paying closer to 4.69%.
Could small be beautiful this year?
For all the renewed optimism, New Zealand’s chronically low productivity still looms as a potential handbrake on any sustained economic resurgence. Yet in a column for The Conversation, entrepreneurship expert Rod McNaughton argues that the very thing often blamed for holding NZ business back – a tendency towards small, relatively unambitious operations – could turn out to be a strength in a world increasingly shaped by artificial intelligence.
As AI tools lower costs, small teams can now achieve output once associated with much larger organisations, while avoiding the overheads and rigidity that weigh on bigger competitors overseas, McNaughton argues. “Some of the most innovative and resilient firms of 2026 may be those that remain deliberately small, use AI to expand their capabilities and build reputations in tightly defined global niches.”
