Conflict hits confidence, although ceasefire offers some reprieve

A sharp deterioration in confidence across both households and businesses signals that the economic impact of the recent global oil shock is already taking hold in New Zealand, even before any physical fuel shortages emerge. Household sentiment has fallen markedly, with rising inflation expectations and reduced willingness to spend pointing to a more cautious consumer. At the same time, businesses are pulling back on hiring and investment intentions, reflecting heightened uncertainty and cost pressures. Although a temporary ceasefire in the Middle East has eased immediate supply fears, ongoing risks to fuel availability and elevated energy costs mean the primary near-term effects are being felt through weaker confidence and higher prices – both dynamics that are likely to weigh on economic activity in the months ahead.

The ANZ Roy Morgan consumer confidence survey showed a sharp decline in household sentiment in March. The index for the month dropped to 95.7, its lowest level since October 2025 (a reading above 100 shows net optimism from households, below 100 shows net pessimism).

However, the March result is an average across the entire month. ANZ also stated that responses at the end of March were more consistent with a net reading of around 80, which would be among the five worst monthly results on record (with the survey starting in 2003).

Inflation expectations from households leapt to their highest level since mid-2022, and the net percentage of households who think now is a good time to buy a major household item fell to nearly -12% – the worst outcome since October last year.

ANZ’s Business Outlook survey showed a similar pull back in confidence among firms. On a seasonally adjusted basis, business confidence fell back to the lowest levels seen since mid-2024, although the own-activity indicator didn’t drop as much. The own-activity indicator essentially asks about a business’ views of its own operations, compared to expectations about business conditions more generally.

Employment and investment intentions for businesses also pulled back sharply, particularly for employment. On a seasonally adjusted basis, employment intentions dropped back from a net 18% looking to hire more in February to just 8% in March. Investment intentions fell from nearly a net 21% to just under 14%.

The ANZ Business Outlook results also reinforced concerns about cost increases and pass-through into other price increases. Business’ headline inflation expectations rose above 3% (seasonally adjusted) for the first time since mid-2024, and expectations of higher input costs and the need to raise prices both increased.

Yesterday was certainly a wild ride. From a pledge of annihilation to a ceasefire marked an incredible U-turn for US President Donald Trump. However, it was also completely in keeping with previous bait-and-switch tactics, where fire and brimstone maximalist demands quickly converted into a backdown or a deadline being delayed further.

The announcement of a two-week ceasefire, which includes the opening of the Strait of Hormuz – to a large degree at least – is unquestionably good news. Whether the Strait will remain open is questionable, and for now we remain sceptical of the longevity of such a truce.

We also don’t expect fuel prices, at least domestically, to fall immediately. Although Brent crude oil prices fell sharply, back below US$100/bbl, after the ceasefire was announced, more plentiful crude oil won’t magically show up seconds later in Asian refineries that eventually supply New Zealand. We remain concerned that fuel supply chains will take time to normalise, even if the ceasefire holds. Even more importantly, energy sector infrastructure in the Middle East remains damaged, or not fully operational, which will continue to keep crack spreads for diesel and other fuels higher, meaning refined fuel prices remain elevated.

Twice-weekly updates on New Zealand’s fuel levels show the amount of fuel in New Zealand or heading our way is broadly holding up. At of 5 April, New Zealand had 51.7 days of diesel in-country and on-water. That total comprised 23.7 days of stock in-country, and another 28 days on-water and either discharging or up to three weeks away.

Based on these latest figures, we have current fuel stocks here or arriving in the next three weeks to last until late May. But ship reporting is only available out three weeks – so to around 26 April. On 26 April, we will still have 30+ days of fuel across all fuel types – and that’s if there are no further shipments notified in the following three weeks, by 26 April.

In short, New Zealand has sufficient fuel for now, and assuming there are further fuel ship deliveries announced or scheduled before the end of April, any fuel supply risk is likely to be pushed out until mid-May and into June. We’re still cautious and concerned about fuel supply, given the “air bubble” in oil supply chains that means supplies to New Zealand will be disrupted later, after existing stocks of crude are used up by refineries, and then after refineries are unable to secure enough oil to process and ship us more fuel.

Given this set of circumstances, we remain of the view – for now – that the immediate effects of the oil shock will be price and confidence based. Households are paying more to cover higher fuel prices, and they will spend less elsewhere to compensate. High fuel prices and general concerns have hit confidence, which will undermine spending growth even further. But we’re not yet seeing any fuel disruption.