Why the Construction Sector is Most Downbeat in 2024

According to the latest NZIER (New Zealand Institute of Economic Research) Quarterly Survey of Business Opinion (QSBO), a net 35 percent of firms expect the general economic outlook to deteriorate over the coming months. The NZIER report points to a further decline in business confidence in the June quarter as higher interest rates continue to dampen demand across the nation’s Zealand economy.

The Current Sentiment in the Construction Sector

The report says the construction sector is the most downbeat, with a net 65 percent of building firms surveyed anticipating a worse economic future. “With weak demand across housing, commercial, and government construction work, prices in the construction sector remain under pressure while costs remain intense,” the NZIER reported in a statement.

“The manufacturing sector was also very downbeat, with a net 63 percent of manufacturers expecting a deterioration in general economic conditions over the coming months.

Key Factors Impacting the Industry’s Outlook

“Domestic demand for the sector remains weak, largely due to the weaker construction demand. This continued to reduce the pricing power of manufacturers, which has driven further deterioration in profitability for the manufacturing sector.

“This environment of higher interest rates and heightened uncertainty about the outlook has made businesses much more cautious about hiring and investment.

“A net 35 percent of firms plan to reduce investment in buildings, while a net 27 percent plan to reduce investment in plant and machinery over the coming year. Many firms are holding off on investment until they feel more certain about when demand will recover.”

How the Sector is Responding to Challenges

Meanwhile, a quarter of firms reported they had reduced staff numbers in the June quarter due to weak demand. “This softer labour demand and the increased labour supply since the reopening of international borders continued to drive the easing in labour shortages. It is now easier for firms to find both skilled and unskilled labour.”

Weak demand has been the leading factor driving the reduction in capacity pressures in the national Zealand economy, and weak demand is increasingly becoming the key concern for businesses.

Over 60 percent of firms report a lack of sales as the primary constraint on their business, a significant increase from the 42 percent of firms that reported that as the primary constraint on their business a year ago.

The NZIER has conducted its QSBO since 1961. It is New Zealand’s longest-running business opinion survey.