A net 40% of firms expect the economy to improve, according to NZIER’s Quarterly Survey of Business Opinion for the September quarter. That’s up from a net 14% three months earlier, and Kiwibank economist Elliott Lowe says businesses haven’t been this optimistic since 2014.
But a net 1% of firms reported a fall in their own trading over the same quarter. NZIER also reported a turnaround in investment intentions, with firms planning to invest in buildings, plant and machinery over the coming year.
The case for a pause
Finance researchers Brandon Julio and Youngsuk Yook, writing in the Journal of Finance, found firms cut investment spending by an average of 4.8% in election years compared with other years, after controlling for growth opportunities and economic conditions. Their evidence suggested firms hold back until the electoral uncertainty is resolved.
A study of OECD countries by political scientists Brandice Canes-Wrone and Jee-Kwang Park found policy uncertainty leads people to postpone investments that are costly to reverse.
NZIER has said the same of New Zealand firms. Ahead of the 2023 election, its survey release said uncertainty over the outcome means businesses tend to hold off on investment plans. In March this year, NZIER named election uncertainty as a downside risk to the early recovery.
What the data shows
In November 2017, after the change of government, Treasury advised the Finance Minister that changes in government had previously been followed by weaker business investment, residential investment and confidence. But it said the effect is usually transitory and the economy typically adjusts within a year or so.
Confidence and activity also tell different stories. NZIER said in 2018 that firms’ own trading activity is a better guide to GDP growth than headline confidence, and that the gap between the two tends to be larger under a Labour-led government.
Before the 2023 election, Westpac’s economics team, led by chief economist Kelly Eckhold, noted that business confidence has tended to be significantly higher under National-led governments. It added that it was less clear that business behaviour differs much under different governments once other factors are controlled for.
Housing shows a similar mix. Bayleys analysed REINZ sales around eight elections since 2002 and found no single pattern. Sales were softer in the 2014 and 2017 election quarters, when capital gains tax (2014) and the bright-line test and foreign buyer ban (2017) were in the debate, and close to normal in 2011 and 2023.
Bayleys senior analyst Eos Li says the bigger factor is whether housing policy becomes a major part of the political debate.
Closer to home, QV South Island professional services manager Michael Tohill said this month that election uncertainty had had only a limited impact on Christchurch’s housing market so far, though the market could stall in the final weeks before the vote.
What’s weighing now
NZIER’s September quarter survey named lack of demand as firms’ main constraint, and pointed to the US-Iran conflict, oil prices and expected interest rate rises as headwinds. Bayleys says the direction of interest rates will be far more important for housing in 2026.
Lowe sees a risk that the current optimism leans too heavily on an assumed rapid improvement in domestic demand. That improvement will be shaped by factors including a stronger housing market, post-election certainty and a better geopolitical picture, he says, all outside businesses’ control.
QV national spokesperson Simon Petersen put the election in proportion. “The election gives people another reason to pause if they’re already feeling uncertain – but it’s certainly not the only reason the market remains so weak in our main urban areas.”
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