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Lower demand for goods and services is now the major concern of businesses rather than labour shortages, a survey by the New Zealand Institute of Economic Research (NZIER) has found.
The latest NZIER Quarterly Survey of Business Opinion said as the country recovered from the summer's adverse weather events, high inflation and rising interest rates have become the key headwinds for households and businesses.
These headwinds were weighing on both business and consumer confidence, and this was leading to caution with regards to spending and investment.
The October general election was also adding to the uncertainty, the NZIER said.
While there were signs inflation was nearing its peak, it was still putting a lot of pressure on the economy.
Principal economist Christina Leung said while the Reserve Bank of New Zealand had been raising the official cash rate since October 2021, the dampening effects of higher interest rates were only just starting to be felt.
"With around half of mortgages due for repricing over the coming year, we expect that as many households face significantly higher mortgage repayments, they will continue to rein in discretionary spending."
This was leading to softer demand which has replaced finding labour as the main restraint for the businesses surveyed.
The reopening of international borders had helped to ease labour shortages, however, migrants would also add to the demand for housing and a range of goods and services, the NZIER said.
"We also expect the OCR to have peaked at its current level of 5.5 percent. As households roll off historically low fixed term mortgage rates onto significantly higher rates we expect a further slowing in broader economic activity," Leung said.
"This should support a further easing in inflation back towards its inflation target band of 1 to 3 percent next year."