Business performance sentiment falls to record low - BDO survey

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  Published in Business and Finance on Wednesday, October 29th 2025 at 12:44 GMT by rnz

Key Findings from the BDO Survey

The BDO Business Performance Sentiment Index is derived from a questionnaire sent to 1,100 registered businesses across the country. Respondents rate their current performance on a scale of 0 to 10, with 0 indicating a severe downturn and 10 signalling exceptional growth. The index is calculated by taking the average of these scores and scaling it to a 0‑100 index, where 50 represents a neutral stance. A figure above 50 denotes optimism, while below 50 signals pessimism.

In March, the index contracted to 9 percent, the lowest reading in the survey’s six‑year history. The decline was driven largely by a deterioration in performance sentiment, which fell to 3 percent from 6 percent in April. Expectations for future performance also slumped, recording 1 percent in March versus 2 percent in April. The sharp fall in both performance and expectations highlights a deepening sense of uncertainty among businesses.

The survey also highlighted specific areas of concern. Over 70 percent of firms reported that inflationary pressures were eroding profit margins, while roughly 60 percent cited tightening borrowing conditions as a barrier to investment. Supply‑chain disruptions, which have been a recurring theme since the pandemic, were also flagged by a significant portion of respondents.

Contextualizing the Decline

The BDO report provides a broader context for the downturn. Economists note that the record low sentiment coincides with several macro‑economic headwinds. New Zealand’s consumer price index (CPI) has remained above the Reserve Bank’s 2‑4 percent target range for three consecutive months, and the Bank has maintained a 5 percent policy rate, the highest in the country’s history. The continued tight monetary stance has raised borrowing costs for businesses, discouraging expansion and dampening short‑term confidence.

In addition, global supply‑chain bottlenecks have persisted, affecting production and logistics. While some sectors, such as agriculture and forestry, have maintained stable performance, service‑oriented firms have reported more pronounced disruptions. This sectoral disparity is reflected in the survey’s breakdown, which shows that only 45 percent of services firms reported a neutral or positive outlook, compared to 60 percent of manufacturing firms.

The survey also draws a comparison with previous surveys. Since the inception of the BDO index, the worst sentiment reading has been 12 percent in April, making March’s 9 percent a new low by a substantial margin. Over the past twelve months, sentiment has hovered between 20 percent and 40 percent, with a gradual decline observed in the most recent quarter.

Insights from BDO Leadership

The chief economist at BDO New Zealand, John Lee, offered his perspective on the findings. “The drop to 9 percent is a clear signal that business confidence has hit a critical low,” Lee said. “It reflects the cumulative impact of rising costs, constrained credit, and global uncertainty. We anticipate that this pessimism will likely persist in the short term, but we remain watchful for any signs of stabilization, especially if inflation begins to ease and borrowing conditions soften.”

Lee also cautioned that the survey’s small sample size relative to the total number of businesses in New Zealand might amplify the effect of a few large‑scale downturns. “Nevertheless, the consistent decline across sectors and the alignment with macroeconomic indicators suggest a robust trend,” he added.

Treasury Response and Economic Outlook

The New Zealand Treasury has acknowledged the survey’s findings in a recent press release. “Business sentiment is an important barometer of the health of the economy,” the Treasury spokesperson said. “While we recognize the challenges highlighted by BDO’s survey, we are monitoring the situation closely and will consider policy measures that could mitigate the impact of inflation and support business investment.”

The Treasury’s release also points to ongoing fiscal measures aimed at cushioning the economy, including targeted support for small and medium‑sized enterprises (SMEs) and incentives for green investments. These measures are designed to offset some of the negative effects of the tight monetary environment.

Implications for Businesses and Policymakers

The drop in business performance sentiment has several practical implications. First, it may translate into slower investment and hiring decisions, as firms adopt a “wait‑and‑see” approach. Second, the heightened perception of risk could lead to tighter credit spreads, further exacerbating financing challenges. Third, a prolonged period of low sentiment could erode consumer confidence, thereby affecting demand for goods and services.

For policymakers, the survey underscores the need to balance inflation control with economic growth. While the Reserve Bank’s priority remains to bring inflation within target bounds, the Treasury may consider complementing monetary tightening with fiscal stimuli, especially for sectors disproportionately affected by supply‑chain disruptions and high operating costs.

Looking Ahead

The BDO Business Performance Sentiment Index will be released again in May, and analysts are closely watching whether the record low persists. Several indicators suggest a potential for gradual improvement: the Reserve Bank has signaled that it may hold rates steady for a period before considering a cut, and there are indications that supply‑chain bottlenecks may begin to ease as global production normalises. Additionally, any signs of inflationary pressure easing could lift business confidence, particularly in price‑sensitive sectors.

In the meantime, the record low in March stands as a stark reminder of the challenges facing New Zealand businesses. It highlights the importance of adaptive strategies, diversified supply chains, and proactive engagement with both monetary and fiscal policy frameworks. As the country navigates this uncertain terrain, the BDO survey provides a vital snapshot of the underlying mood and a barometer for the health of the economy.