Business confidence plunged in March as firms processed the shock of the Iran conflict and soaring fuel costs.

The ANZ Business Outlook survey for March showed confidence fell 26 points, down from 59 to 33.

The survey calculates a net score by subtracting those who expect a deterioration from those who expect improvement.

“The world changed this month,” ANZ chief economist Sharon Zollner said.

“Just as the economic recovery was starting to feel real, dark clouds have gathered.

The “own past activity” indicator fell from 23% to a net 18% of firms reporting stronger activity than a year ago, with a particularly sharp fall for retail (down 20 points to +5) and construction (down 16 points to -13).

Inflation indicators were higher. The net percentage of firms expecting to raise prices in the next three months rose seven points to 60%, while the average amount by which firms expected to raise their prices rose from 2% to 2.4%.

The net percentage of firms expecting cost increases – 85%, up from 79% – was the highest since early 2023.

“It’s not just anxiety about the future,” Zollner said.

“Many firms are already reporting that their activity has taken a hit as people defer their decision-making in the face of uncertainty.”

The bulk of survey responses were collected the day after the Middle East conflict began, Zollner said.

However, around a third of responses came in following an email reminder on March 23.

While noting that because of the smaller sample size the late-month data was more volatile, it was clearly more negative.

“Forward-looking activity indicators dropped sharply as the month went on, while cost and price indicators rose,” Zollner said.

ANZ chief economist Sharon Zollner. Photo / Corey Fleming

Of the activity indicators, business confidence took by far the largest hit over the three weeks in question, while profit expectations also went negative.

But arguably of most significance was the past own activity result, which was much weaker in the late-month sample, she said.

Late-month responses averaged zero, which did not bode well for next month, she said.

“It was broad-based: every sector saw a sharp fall in this indicator.”

The fall in the activity indicators as the month went on was understandable, Zollner said.

“[It has] become increasingly clear that this is not a short-lived shock, but something more persistent.

“Firms are understandably in a mood to reduce their risk-taking – but the unfortunate truth is that one firm’s risk (a purchase, an investment, a hire) is someone else’s opportunity."

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.