The latest GDP figures, showing 0.8% growth for the March quarter, point to an economy that was regaining momentum earlier in the year, says the EMA.
However, the data does not reflect the challenges we have seen since the end of March.
EMA Head of Advocacy and Strategy Alan McDonald says that while the March quarter data signalled a lift in activity compared with the previous quarter, it reflected a period of gradual recovery through January and February, before global conditions shifted in March with the war in Iran and the closure of the Strait of Hormuz.
“We won’t see the full impact of rapidly rising fuel costs and ongoing geopolitical uncertainty until the June quarter data,” McDonald says.
“While fuel prices have eased somewhat and serious supply concerns did not materialise, businesses are increasingly concerned about the impact of prolonged global tensions.”
McDonald says EMA members have managed higher costs in the short term, but many are now looking ahead to the next two quarters with increasing caution.
“What we’re hearing from businesses is that they’ve absorbed a lot of the pressure so far, but there are limits to that.
“In sectors like construction and logistics, there are concerns that activity may slow in the next two quarters depending on the stability of the peace agreement and how quickly fuel prices settle back to a new normal.
“We’re hearing about machinery potentially being parked up, projects being deferred, and decisions being pushed out while businesses wait for greater certainty.”
These on-the-ground drumbeats highlight the lag between official data and what businesses are experiencing in real-time, McDonald says.
“Conditions on the ground have moved on from what this data shows, but businesses have been very adaptable. Responding to disruption has almost become business as usual.”
Continued strength in the primary and export sectors has helped support the broader economy, McDonald says.
“Without that strength, the overall picture would look more subdued.”
Looking ahead, McDonald says the outlook for the rest of the year will depend on how long current cost pressures persist and how quickly business confidence recovers.
“The next couple of quarters will be critical. If higher input costs continue, we’re likely to see continued restraint in investment and hiring decisions.”
McDonald says the New Zealand labour market is still showing signs of softening, with unemployment elevated and unlikely to ease quickly without a sustained pickup in activity.